**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

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**FORM 10-Q**

 

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**(Mark One)**

 
| **x**                                                                                                                      | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|----------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                 | ** ** | ** **                                                                                              |
| **For the  quarterly period ended March 31, 2008**                                                                    |
| ** **                                                                                                                 | ** ** | ** **                                                                                              |
| **OR**                                                                                                                     |
| ** **                                                                                                                 | ** ** | ** **                                                                                              |
| **o**                                                                                                                      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                 | ** ** | ** **                                                                                              |
| **For the  transition period  from              to** |

 

**Commissionfile number****001-32593**

 

**Global Partners LP**

(Exactname 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 principal executiveoffices, including zip code)

 

**(781) 894-8800******(Registrant’s telephone number, including areacode)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(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.                                                                              Yesx No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer  o                     |   | Accelerated filer x          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company o |
| (Do not check if a  smaller reporting company) |   |                              |

 

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

 

Theissuer had 7,428,139 common units and 5,642,424 subordinated units outstandingas of May 6, 2008.

 

 

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**TABLE OFCONTENTS**

 
| **PART I.**                                                                                 | **FINANCIAL INFORMATION**                                                                       |
|--------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|
|                                                                                             |
| **Item 1.**                                                                                      | **Financial  Statements**                                                                       |
|                                                                                             |
| Consolidated Balance Sheets as of March 31, 2008  and December 31, 2007                |
|                                                                                             |
| Consolidated Statements of Income for the three months  ended March 31, 2008 and 2007       |
|                                                                                             |
| Consolidated Statements of Cash Flows for the three  months ended March 31, 2008 and 2007   |
|                                                                                             |
| Consolidated Statements of Partners’ Equity for the  three months ended March 31, 2008 |
|                                                                                             |
| Notes to Consolidated 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.    Financial Statements**

 

**GLOBAL PARTNERS LP**

**CONSOLIDATED BALANCE SHEETS**

**(In thousands, except unit data)**

**(Unaudited)**

** **
| ** **                                                                                                           | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                           | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                      |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                            |       | $                        | 3,524      |                        | $          | 2,110 |   |
| Accounts receivable, net                                                                                             |       | 370,313                  |       | 439,165                     |       |
| Accounts receivable—affiliates                                                                                  |       | 3,034                    |       | 4,308                       |       |
| Inventories                                                                                                          |       | 328,736                  |       | 484,259                     |       |
| Brokerage margin deposits                                                                                            |       | 16,151                   |       | 12,545                      |       |
| Fair value of forward fixed price contracts                                                                          |       | 231                      |       | 742                         |       |
| Prepaid expenses and other current assets                                                                            |       | 22,850                   |       | 17,736                      |       |
| Total current assets                                                                                                 |       | 744,839                  |       | 960,865                     |       |
| Property and equipment, net                                                                                          |       | 162,150                  |       | 161,734                     |       |
| Intangible assets, net                                                                                               |       | 33,486                   |       | 34,168                      |       |
| Other assets                                                                                                         |       | 2,339                    |       | 2,460                       |       |
| Total assets                                                                                                         |       | $                        | 942,814    |                        | $          | 1,159,227 |   |
| ** **                                                                                                           | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **Liabilities and partners’ equity**                                                                            | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Current liabilities:                                                                                                 |       |                     |       |                        |       |
| Accounts payable                                                                                                     |       | $                        | 292,716    |                        | $          | 371,341 |   |
| Revolving line of credit—current portion                                                                        |       | 218,200                  |       | 304,800                     |       |
| Environmental liabilities—current portion                                                                       |       | 876                      |       | 876                         |       |
| Note payable, other                                                                                                  |       | 1,156                    |       | 1,239                       |       |
| Accrued expenses and other current liabilities                                                                       |       | 51,040                   |       | 69,762                      |       |
| Obligations on forward fixed price contracts and other derivatives                                                   |       | 6,918                    |       | 41,892                      |       |
| Total current liabilities                                                                                            |       | 570,906                  |       | 789,910                     |       |
| Revolving line of credit—less current portion                                                                   |       | 190,200                  |       | 190,200                     |       |
| Environmental liabilities—less current portion                                                                  |       | 8,323                    |       | 8,340                       |       |
| Accrued pension benefit cost                                                                                         |       | 6,101                    |       | 5,236                       |       |
| Deferred compensation                                                                                                |       | 1,527                    |       | 1,481                       |       |
| Other long-term liabilities                                                                                          |       | 6,086                    |       | 3,709                       |       |
| Total liabilities                                                                                                    |       | 783,143                  |       | 998,876                     |       |
| ** **                                                                                                           | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **Partners’ equity**                                                                                            | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Common unitholders (7,428,139 units issued and outstanding at  March 31, 2008 and December 31, 2007)       |       | 166,718                  |       | 165,330                     |       |
| Subordinated unitholders (5,642,424 units issued and outstanding at  March 31, 2008 and December 31, 2007) |       | (1,211                   | )          | (2,116                      | )          |
| General partner interest (230,303 equivalent units outstanding at  March 31, 2008 and December 31, 2007)   |       | (160                     | )          | (147                        | )          |
| Accumulated other comprehensive loss                                                                                 |       | (5,676                   | )          | (2,716                      | )          |
| Total partners’ equity                                                                                          |       | 159,671                  |       | 160,351                     |       |
| Total liabilities and partners’ equity                                                                          |       | $                        | 942,814    |                        | $          | 1,159,227 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

1

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**GLOBAL PARTNERS LP**

**CONSOLIDATED STATEMENTS OF INCOME**

**(In thousands, except per unit data)**

**(Unaudited)**

 
| ** **                                                                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                                                                          |       |                                             |       |   |   |
| Sales                                                                         |       | $                                                | 2,720,992  |   | $ | 1,573,176 |   |
| Cost of sales                                                                 |       | 2,685,376                                        |       | 1,530,924 |   |
| Gross profit                                                                  |       | 35,616                                           |       | 42,252 |   |
|                                                                          |       |                                             |       |   |   |
| Costs and operating expenses:                                                 |       |                                             |       |   |   |
| Selling, general and administrative                                           |       | 11,073                                           |       | 13,406 |   |
| Operating expenses                                                            |       | 9,025                                            |       | 5,890 |   |
| Amortization expenses                                                         |       | 724                                              |       | 358 |   |
| Total costs and operating expenses                                            |       | 20,822                                           |       | 19,654 |   |
|                                                                          |       |                                             |       |   |   |
| Operating income                                                              |       | 14,794                                           |       | 22,598 |   |
|                                                                          |       |                                             |       |   |   |
| Interest expense                                                              |       | (6,030                                           | )          | (3,316 | ) |
| Gain on sale of investment                                                    |       | —                                           |       | 14,118 |   |
|                                                                          |       |                                             |       |   |   |
| Income before income tax expense                                              |       | 8,764                                            |       | 33,400 |   |
|                                                                          |       |                                             |       |   |   |
| Income tax expense                                                            |       | (145                                             | )          | (525 | ) |
|                                                                          |       |                                             |       |   |   |
| Net income                                                                    |       | 8,619                                            |       | 32,875 |   |
|                                                                          |       |                                             |       |   |   |
| Less: General partner’s interest in net income                           |       | (149                                             | )          | (657 | ) |
|                                                                          |       |                                             |       |   |   |
| Limited partners’ interest in net income                                 |       | $                                                | 8,470      |   | $ | 32,218 |   |
|                                                                          |       |                                             |       |   |   |
| Net income per limited partner unit, basic and diluted(1)                     |       | $                                                | 0.63       |   | $ | 1.75 |   |
|                                                                          |       |                                             |       |   |   |
| Weighted average limited partners’ units outstanding, basic and  diluted |       | 13,071                                           |       | 11,285 |   |

 

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(1)   See Note 2for net income per limited partner unit calculation.

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

2

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**GLOBAL PARTNERS LP**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                                                                               |       |                                             |       |   |   |
| **Cash flows from operating activities**                                           |       |                                             |       |   |   |
| Net income                                                                         |       | $                                                | 8,619      |   | $ | 32,875 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |       |                                             |       |   |   |
| Depreciation and amortization                                                      |       | 3,492                                            |       | 1,164 |   |
| Amortization of deferred financing fees                                            |       | 190                                              |       | 105 |   |
| Loss (gain) on disposition of property and equipment and other                     |       | 1                                                |       | (1 | ) |
| Stock-based compensation expense                                                   |       | 195                                              |       | — |   |
| Gain on sale of investment                                                         |       | —                                           |       | (14,118 | ) |
| Changes in operating assets and liabilities:                                       |       |                                             |       |   |   |
| Accounts receivable                                                                |       | 68,852                                           |       | (35,852 | ) |
| Accounts receivable – affiliate                                               |       | 1,274                                            |       | 138 |   |
| Inventories                                                                        |       | 155,523                                          |       | 145,759 |   |
| Broker margin deposits                                                             |       | (3,606                                           | )          | (753 | ) |
| Prepaid expenses, all other current assets and other assets                        |       | (5,334                                           | )          | 8,714 |   |
| Accounts payable                                                                   |       | (78,625                                          | )          | (49,329 | ) |
| Income taxes payable                                                               |       | 109                                              |       | (1,051 | ) |
| Change in fair value of forward fixed price contracts                              |       | (34,463                                          | )          | 66,172 |   |
| Accrued expenses and all other current liabilities                                 |       | (18,410                                          | )          | (13,095 | ) |
| Net cash provided by operating activities                                          |       | 97,817                                           |       | 140,728 |   |
|                                                                               |       |                                             |       |   |   |
| **Cash flows from investing activities**                                           |       |                                             |       |   |   |
| Terminal pre-acquisition deposit and other costs                                   |       | —                                           |       | (4,708 | ) |
| Proceeds from sale of investment                                                   |       | —                                           |       | 15,262 |   |
| Capital expenditures                                                               |       | (3,195                                           | )          | (841 | ) |
| Proceeds from sale of property and equipment                                       |       | 9                                                |       | 2 |   |
| Net cash (used in) provided by investing activities                                |       | (3,186                                           | )          | 9,715 |   |
|                                                                               |       |                                             |       |   |   |
| **Cash flows from financing activities**                                           |       |                                             |       |   |   |
| Payments on credit facilities, net                                                 |       | (86,600                                          | )          | (147,000 | ) |
| Payments on note payable, other                                                    |       | (83                                              | )          | (78 | ) |
| Distributions to partners                                                          |       | (6,534                                           | )          | (5,239 | ) |
| Net cash used in financing activities                                              |       | (93,217                                          | )          | (152,317 | ) |
|                                                                               |       |                                             |       |   |   |
| Increase (decrease) in cash and cash equivalents                                   |       | 1,414                                            |       | (1,874 | ) |
| Cash and cash equivalents at beginning of period                                   |       | 2,110                                            |       | 3,861 |   |
| Cash and cash equivalents at end of period                                         |       | $                                                | 3,524      |   | $ | 1,987 |   |
|                                                                               |       |                                             |       |   |   |
| **Supplemental information**                                                       |       |                                             |       |   |   |
| Cash paid during the period for interest                                           |       | $                                                | 6,237      |   | $ | 3,422 |   |

* *

*Theaccompanying notes are an integral part of these*consolidated financial statements.

 

3

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**GLOBALPARTNERS LP**

**CONSOLIDATED STATEMENTS OFPARTNERS’ EQUITY**

**(In thousands)**

**(Unaudited)**

 
| ** **                                   | ** ** | ** **      | ** ** | ** **       | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** **         | ** ** |
|----------------------------------------------|------------|-----------------|------------|------------------|------------|--------------|------------|-------------------|------------|--------------------|------------|
| ** **                                   | ** ** | ** **      | ** ** | ** **       | ** ** | **General**  | ** ** | **Other**         | ** ** | **Total**          | ** ** |
| ** **                                   | ** ** | **Common**      | ** ** | **Subordinated** | ** ** | **Partner**  | ** ** | **Comprehensive** | ** ** | **Partners’** | ** ** |
| ** **                                   | ** ** | **Unitholders** | ** ** | **Unitholders**  | ** ** | **Interest** | ** ** | **Loss**          | ** ** | **Equity**         | ** ** |
|                                         |       |            |       |             |       |         |       |              |       |               |       |
| **Balance December 31, 2007**           |       | $               | 165,330    |             | $          | (2,116       | )          | $                 | (147       | )                  | $          | (2,716 | ) | $ | 160,351 |   |
| Stock-based compensation expense             |       | 195             |       | —           |       | —       |       | —            |       | 195                |       |
| Distributions to partners                    |       | (3,621          | )          | (2,751           | )          | (162         | )          | —            |       | (6,534             | )          |
| Comprehensive income:                        |       |            |       |             |       |         |       |              |       |               |       |
| Net income                                   |       | 4,814           |       | 3,656            |       | 149          |       | —            |       | 8,619              |       |
| Other comprehensive income:                  |       |            |       |             |       |         |       |              |       |               |       |
| Change in fair value of interest rate collar |       | —          |       | —           |       | —       |       | (2,396            | )          | (2,396             | )          |
| Change in pension liability                  |       | —          |       | —           |       | —       |       | (564              | )          | (564               | )          |
| Total comprehensive income                   |       | —          |       | —           |       | —       |       | —            |       | 5,659              |       |
| **Balance March 31, 2008**              |       | $               | 166,718    |             | $          | (1,211       | )          | $                 | (160       | )                  | $          | (5,676 | ) | $ | 159,671 |   |

 

*Theaccompanying notes are an integral part of these*consolidated financial statements.

 

4

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** **

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 1.**       Organization and Basis ofPresentation

** **

**Organization**

 

GlobalPartners LP (the “Partnership”) is a publicly traded master limited partnershipthat engages in the wholesale and commercial distribution of refined petroleumproducts and small amounts of natural gas and provides ancillary services tocompanies domestically and, on a limited basis, internationally.

 

ThePartnership has four operating subsidiaries: Global Companies LLC, its subsidiary, Glen Hes Corp., Global MontelloGroup Corp. and Chelsea Sandwich LLC (the four operating subsidiaries,collectively, the “Companies”).  TheCompanies (other than Glen Hes Corp.) are wholly owned by Global Operating LLC,a wholly owned subsidiary of the Partnership. In addition, GLP Finance Corp. (“GLP Finance”) is a wholly ownedsubsidiary of the Partnership.  GLPFinance has no material assets or liabilities. Its activities will be limited to co-issuing debt securities andengaging in other activities incidental thereto.

 

ThePartnership’s 1.73% general partner interest (reduced from 2% following theprivate placement of Class B units discussed in Note 11) is held by GlobalGP LLC, the Partnership’s general partner (the “General Partner”).  The General Partner, which is owned byaffiliates of the Slifka family, manages the Partnership’s operations andactivities and employs its officers and substantially all of itspersonnel.  Affiliates of the GeneralPartner, including its directors and executive officers, own 61,824 commonunits and 5,642,424 subordinated units, representing a combined 42.9% limitedpartner interest.

 

**Basis of Presentation**

** **

***InterimFinancial Statements***

** **

**The accompanyingconsolidated financial statements as of March 31, 2008 and December 31,2007 and for the three months ended March 31, 2008 and 2007 reflect theaccounts of the Partnership.  Allintercompany balances and transactions have been eliminated.**

** **

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States (“GAAP”) andreflect all adjustments (consisting only of normal recurring adjustments) whichare, in the opinion of management, necessary for a fair presentation of thefinancial condition 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 financial statements for the year ended December 31, 2007 andnotes thereto contained in the Partnership’s Annual Report on Form 10-K.  The results of operations for the threemonths ended March 31, 2008 are not necessarily indicative of the resultsof operations that will be realized for the entire year ending December 31,2008.

 

As demand for some of thePartnership’s refined petroleum products, specifically home heating oil andresidual oil for space heating purposes, is generally greater during the wintermonths, sales are generally higher during the first and fourth quarters of thecalendar year which may result in significant fluctuations in the Partnership’squarterly operating results.

 

The consolidated balancesheet at December 31, 2007 has been derived from the audited consolidatedfinancial statements and footnotes thereto included in the Partnership’s AnnualReport on Form 10-K for the year ended December 31, 2007.

 

5

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 2.**       Net Income Per LimitedPartner Unit

** **

Thecomputation of net income per limited partner unit is based on the weightedaverage number of common and subordinated units, or limited partner units,outstanding during the period.  Basic anddiluted net income per limited partner unit are determined by dividing netincome after deducting the amount allocated to the general partner interest(including incentive distributions on the incentive distribution rights held bythe General Partner in excess of its general partner interest) by the weightedaverage number of outstanding limited partner units during the period inaccordance with Emerging Issues Task Force 03-06, “Participating Securities andthe Two-Class Method under FASB Statement No. 128” (“EITF 03-06”).  EITF 03-06 addresses the computation ofearnings per share (in the Partnership’s case, net income per limited partnerunit) by an entity that has issued securities other than common stock (in thePartnership’s case, limited partner units) that contractually entitle theholder to participate in dividends and earnings of the entity when, and if, itdeclares dividends on its common stock (in the Partnership’s case,distributions on its limited partner units). Essentially, EITF 03-06 provides that in any accounting period where thePartnership’s aggregate net income exceeds its aggregate distribution for suchperiod, the Partnership is required to present net income per limited partnerunit as if all of the earnings for the periods were distributed, regardless ofwhether those earnings would actually be distributed during a particular periodfrom an economic or practical perspective. EITF 03-06 does not impact the Partnership’s overall net income orother financial results; however, for periods in which the Partnership’saggregate net income exceeds its aggregate distributions for such period, itwill have the impact of reducing the earnings per limited partner unit.  This result occurs as a larger portion of thePartnership’s aggregate earnings is allocated to the incentive distributionrights held by the General Partner, as if distributed, even though thePartnership makes cash distributions on the basis of cash available fordistributions, not earnings, in any given accounting period.  In accounting periods where aggregate netincome does not exceed aggregate distributions for such period, EITF 03-06does not have any impact on the Partnership’s net income per limited partnerunit calculation.

 

Thefollowing sets forth the net income allocation and per unit data using thismethod for the periods presented (in thousands, except per unit data):

 
| ** **                                                     | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                     | ** ** | **March 31,**               | ** ** |
| ** **                                                     | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                                           |       |                             |       |   |   |
| Net income                                                     |       | $                                | 8,619      |   | $ | 32,875 |   |
| Less: General Partner’s general partner interest(1)       |       | (149                             | )          | (657 | ) |
| Net income available to limited partners                       |       | 8,470                            |       | 32,218 |   |
| Dilutive impact of theoretical distribution of earnings        |       | (239                             | )          | (12,405 | ) |
| Net income available to limited partners under EITF 03-06 |       | $                                | 8,231      |   | $ | 19,813 |   |
|                                                           |       |                             |       |   |   |
| Per unit data:                                                 |       |                             |       |   |   |
| Net income available to limited partners                       |       | $                                | 0.65       |   | $ | 2.85 |   |
| Dilutive impact of theoretical distribution of earnings        |       | (0.02                            | )          | (1.10 | ) |
| Net income available to limited partners under EITF 03-06 |       | $                                | 0.63       |   | $ | 1.75 |   |
|                                                           |       |                             |       |   |   |
| Weighted average limited partner units outstanding             |       | 13,071                           |       | 11,285 |   |

 

----

(1)  Calculation includes theeffect of the private placement of Class B units on May 9, 2007 and,as a result, the general partner interest was 1.73% for the three months ended March 31,2008.  For the three months ended March 31,2007, the general partner interest was 2%.

 

6

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 2.**       Net Income Per LimitedPartner Unit (continued)

** **

OnJanuary 24, 2008, the board of directors of the Partnership’s GeneralPartner declared a quarterly distribution of $0.4875 per unit for the periodfrom October 1, 2007 through December 31, 2007.  On April 23, 2008, the board declared aquarterly cash distribution of $0.4875 per unit for the period from January 1,2008 through March 31, 2008.  Thesedeclared cash distributions resulted in incentive distributions to thePartnership’s General Partner, as the holder of the incentive distributionrights, as indicated above, and enabled the Partnership to reach its secondtarget distribution with respect to such incentive distribution rights.  See Note 8, “Cash Distributions” forfurther information.  During the threemonths ended March 31, 2007, the board did not declare cash distributionsthat resulted in incentive distributions to the General Partner.

 

**Note 3.**       Inventories

** **

ThePartnership hedges substantially all of its inventory purchases through futurescontracts and swap agreements.  Hedgesare executed when inventory is purchased and are identified with that specificinventory.  Changes in the fair value ofthese contracts, as well as the offsetting gain or loss on the hedged inventoryitem, are recognized currently in earnings. All hedged inventory is valued using the lower of cost, as determined byspecific identification, or market. Prior to sale, hedges are removed from specific barrels of inventory,and the then unhedged inventory is sold and accounted for on a first-in,first-out basis.  Inventories consistedof the following (in thousands):

 
| ** **                                         | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                               |       |                     |       |                        |       |
| Distillates: home heating oil, diesel and kerosene |       | $                        | 149,251    |                        | $          | 344,984 |   |
| Residual oil                                       |       | 52,163                   |       | 50,054                      |       |
| Gasoline                                           |       | 91,830                   |       | 71,916                      |       |
| Blend stock                                        |       | 35,492                   |       | 17,305                      |       |
| Total                                              |       | $                        | 328,736    |                        | $          | 484,259 |   |

 

Inaddition to its own inventory, the Partnership has exchange agreements withunrelated third-party suppliers, whereby it may draw inventory from these othersuppliers and suppliers may draw inventory from the Partnership.  Positive exchange balances are accounted foras accounts receivable and amounted to $45.2 million and$36.8 million at March 31, 2008 and December 31, 2007,respectively.  Negative exchange balancesare accounted for as accounts payable and amounted to $23.8 million and$11.1 million at March 31, 2008 and December 31, 2007,respectively.  Exchange transactions arevalued using current quoted market prices.

 

**Note 4.**       Derivative FinancialInstruments

** **

**The Partnership accountsfor its derivatives in accordance with Statement of Financial AccountingStandards (“SFAS”) No. 133, “Accounting for Derivative Instruments andHedging 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.  Changes in the fair value of the derivativeare to be recognized currently in earnings, unless specific hedge accountingcriteria are met.**

** **

***Fair Value Hedges***

** **

**The fair value of thePartnership’s derivatives is determined through the use of independent marketsand is based upon the prevailing market prices of such instruments at the dateof valuation.  The Partnership entersinto futures contracts for the receipt or delivery of refined petroleumproducts in future periods.  Thecontracts are entered into in the normal course of business to reduce risk ofloss of inventory on hand, which could result through fluctuations in marketprices.  Changes in the fair value ofthese contracts, as well as the offsetting gain or loss on the hedged inventoryitem, are recognized currently in earnings. Ineffectiveness related to these hedging activities was immaterial at March 31,2008.**

** **

**7**

----

** **

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 4.**       Derivative FinancialInstruments (continued)

** **

The Partnership also usesfutures contracts and swap agreements to hedge exposure under forward purchaseand sale commitments.  These agreementsare intended to hedge the cost component of virtually all of the Partnership’sforward purchase and sale commitments. Changes in the fair value of these contracts, as well as offsettinggains or losses on the forward fixed price purchase and sale commitments, arerecognized currently in earnings.  Gainsand losses on net product margin from forward fixed price purchase and salecontracts are reflected in earnings as these contracts mature.

 

Thecomposition and fair value of derivative instruments relating to forward fixedprice purchase and sale contracts on the Partnership’s consolidated balancesheet consisted of the following (in thousands):

 
| ** **                    | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                          |       |                     |       |                        |       |
| Futures contracts             |       | $                        | (6,340     | )                           | $          | (37,355 | ) |
| Swaps, options and other, net |       | (347                     | )          | (3,795                      | )          |
| Total                         |       | $                        | (6,687     | )                           | $          | (41,150 | ) |

 

The Partnership alsomarkets and sells natural gas.  ThePartnership generally conducts business by entering into forward purchasecommitments for natural gas only when it simultaneously enters intoarrangements for the sale of product for physical delivery to third-partyusers.  The Partnership generally takesdelivery under its purchase commitments at the same location as it delivers tothird-party users.  Through thesetransactions, which establish an immediate margin, the Partnership seeks tomaintain a position that is substantially balanced between firm forwardpurchase and sales commitments.  Naturalgas is generally purchased and sold at fixed prices and quantities.  Current price quotes from actively tradedmarkets are used in all cases to determine the contracts’ fair value.  Changes in the fair value of these contractsare recognized currently in earnings as an increase or decrease in cost ofsales.

 

ThePartnership formally documents all relationships between hedging instrumentsand hedged items after its risk management objectives and strategy forundertaking the hedge are determined. The Partnership calculates hedge effectiveness on a quarterlybasis.  This process includes specificidentification of the hedging instrument and the hedged transaction, the natureof the risk being hedged and how the hedging instrument’s effectiveness will beassessed.  Both at the inception of thehedge and on an ongoing basis, the Partnership assesses whether the derivativesthat are used in hedging transactions are highly effective in offsettingchanges in fair value of hedged items. The derivative instruments that qualify for hedge accounting are fairvalue hedges.

 

ThePartnership has a daily margin requirement with its broker based on the priorday’s market results on open futures contracts. The required brokerage margin balance was $16.1 million and$12.5 million at March 31, 2008 and December 31, 2007,respectively.

 

ThePartnership is exposed to credit loss in the event of nonperformance bycounterparties of futures contracts, options and swap agreements, but thePartnership has no current reason to expect any material nonperformance by anyof these counterparties.  Futurescontracts, the primary derivative instrument utilized by the Partnership, aretraded on regulated 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 clearing broker, a major financial institution, for all New York Mercantile Exchange****(“NYMEX”) derivative transactionsand the right of offset exists. Accordingly, the fair value of all derivative instruments is presentedon a net basis on the consolidated balance sheets.

 

8

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 4.**       Derivative FinancialInstruments (continued)

** **

***Interest Rate Hedge***

 

The Partnership executed a zeropremium interest rate collar with a major financial institution.  The collar, which became effective on May 14,2007, is used to hedge the variability in interest payments due to changes inthe three-month LIBOR rate with respect to $100.0 million of long-term three-month LIBOR-basedborrowings.  Under the collar, thePartnership capped its exposure at a maximum three-month LIBOR rate of5.75%.  In addition, the Partnershipestablished a minimum floor rate of 3.75%. As of March 31, 2008, the three-month LIBOR rate of 3.1% waslower than the floor rate.  As a result,the Partnership will remit to the financial institution the difference betweenthe floor rate and the current rate which amounted to approximately $89,000 andwas recorded in accrued expenses and other current liabilities on theaccompanying balance sheet.  The collar, which expires on May 14, 2011, isdesignated as a cash flow hedge and is accounted for under the provisions ofSFAS No. 133.  As of March 31,2008, the change in fair value of the collar was a liability of approximately$2.4 millionand was recorded in both other long-term liabilities and accumulated othercomprehensive income.  There was noineffectiveness related to the collar as of March 31, 2008.

 

**Note 5.**       Debt

** **

ThePartnership has a senior secured credit agreement (the “Credit Agreement”) withtotal available commitments of $750.0** **million.  There are three facilities under the CreditAgreement:

 

·     aworking capital revolving credit facility to be used for working capitalpurposes and letters of credit in the principal amount equal to the lesser ofthe Partnership’s borrowing base and $650.0 million, of which two$50.0 million seasonal overline facilities are available each year onlyduring the period between September 1 and June 30;

 

·     an$85.0 million acquisition facility to be used for funding acquisitionssimilar to the Partnership’s business line that have a purchase price of$25.0 million or less or $35.0 million or less in the aggregate inany 12-month period; and

 

·     a $15.0 million revolving credit facility to beused for general purposes, including payment of distributions to thePartnership’s unitholders.

 

In addition, provided noEvent of Default (as defined in the Credit Agreement) then exists, thePartnership may request to increase:  (1) theacquisition facility by up to another $50.0 million, for a totalacquisition facility of up to $135.0 million; and (2) the workingcapital revolving credit facility by up to another $100.0 million, for atotal working capital revolving credit facility of up to $750.0 million.  Any such request for an increase by thePartnership must be in a minimum amount of $5.0 million, and no more thanthree such requests may be made for each facility.

 

Borrowingsunder the Partnership’s working capital revolving credit, acquisition andrevolving credit facilities bear interest at the Partnership’s option at (1) theEurodollar rate, plus 1%, 11⁄2% and 11⁄2%, respectively, (2) the cost of fundsrate, plus 1%, 13⁄4% and 11⁄2%, respectively, or (3) the bank’s baserate.  The average interest rate for thethree months ended March 31, 2008 was approximately 4.6%.  Inaddition, the Partnership executed a zero premium interest rate collar with amajor financial institution.  The collar,which became effective on May 14, 2007, is used to hedge the variabilityin interest payments due to changes in the three-month LIBOR rate with respectto $100.0 million of long-term three-month LIBOR-based borrowings (see Note 4 for further discussion on the interest rate collar).

 

ThePartnership incurs a letter of credit fee of 1% per annum for each letter ofcredit issued.  In addition, thePartnership incurs a commitment fee on the unused portion of the threefacilities under the Credit Agreement (including the unused portion of eitherof the seasonal overline facilities exercised by the Partnership) at a rate of25 basis points per annum, a facility fee of 10 basis points perannum on any unexercised seasonal overline facility during the period between September 1and June 30 and a seasonal overline fee of $30,000 each time thePartnership elects to exercise either of the seasonal overline facilities.

 

9

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 5.**       Debt (continued)

** **

TheCredit Agreement will mature on April 22, 2011.  The Partnership classifies a portion of itsrevolving line of credit as a long-term liability because the Partnership has amulti-year, long-term commitment from its bank group.  The long-term portion of the revolving lineof credit was $190.2 million at March 31, 2008 and at December 31,2007, representing the amounts expected to be outstanding during the year.  In addition, the Partnership classifies aportion of its revolving line of credit as a current liability because itrepays amounts outstanding and reborrows funds based on its working capitalrequirements.  The current portion of therevolving line of credit was approximately $218.2 million and$304.8 million at March 31, 2008 and December 31, 2007,respectively, representing the amounts the Partnership expects to pay downduring the course of the year.

 

Asof March 31, 2008, the Partnership had total borrowings outstanding underthe Credit Agreement of $408.4 million and outstanding letters of creditof $81.9 million.  The totalremaining availability for borrowings and letters of credit at March 31,2008 was $259.7 million.

 

TheCredit Agreement is secured by substantially all of the assets of thePartnership and each of the Companies and is guaranteed by the GeneralPartner.  The Credit Agreement imposescertain requirements including, for example, a prohibition againstdistributions if any potential default or Event of Default (as defined in theCredit Agreement) would occur, and limitations on the Partnership’s ability togrant liens, make certain loans or investments, incur additional indebtednessor guarantee 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.

 

TheCredit Agreement imposes covenants that require the Partnership to maintaincertain minimum working capital amounts, capital expenditure limits, a minimumEBITDA ratio, a minimum interest coverage ratio and a maximum leverageratio.  The Partnership was in compliancewith these covenants at March 31, 2008.

 

TheCredit Agreement requires that in each calendar year, the outstanding amountunder the working capital revolving credit facility must be equal to or lessthan $130.0 million for a period of ten consecutive calendar days.

 

TheCredit Agreement limits distributions by the Partnership to its unitholders tothe amount of the Partnership’s available cash and permits borrowings to fundsuch distributions only under the $15.0 million revolving creditfacility.  The revolving credit facilityis subject to an annual “clean-down” period, requiring the Partnership toreduce the amount outstanding under the revolving credit facility to $0 for 30consecutive calendar days in each calendar year.

 

**Note 6.**       Employee Benefit Plan withRelated Party

** **

The General Partneremploys substantially all of the Partnership’s employees and charges thePartnership for their services.  ThePartnership also reimburses the General Partner for its contributions under theGeneral Partner’s 401(k) Savings and Profit Sharing Plan and the GeneralPartner’s qualified and non-qualified pension plans.  The Partnership’s net periodic benefit costfor its defined benefit pension plan consisted of the following components (inthousands):

 
| ** **                     | ** ** | **Three Months Ended** | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **March 31,**               | ** ** |
| ** **                     | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                           |       |                             |       |   |   |
| Service cost                   |       | $                                | 265        |   | $ | 204 |   |
| Interest cost                  |       | 200                              |       | 163 |   |
| Expected return on plan assets |       | (165                             | )          | (158 | ) |
| Net periodic benefit cost      |       | $                                | 300        |   | $ | 209 |   |

 

10

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 7.**       Related Party Transactions

** **

ThePartnership is a party to a Second Amended and Restated Terminal Storage Rentaland Throughput Agreement with Global Petroleum Corp. (“GPC”), an affiliate ofthe Partnership, which extends through December 2013 with annual renewaloptions.  The agreement is accounted foras an operating lease.  The expensesunder this agreement totaled approximately $2.1** **millionfor each of the three months ended March 31,** **2008and 2007.

 

Pursuantto an Amended and Restated Services Agreement with GPC, GPC provides certainterminal operating management services to the Partnership and uses certainadministrative, accounting and information processing services of thePartnership.  The expenses from theseservices totaled approximately $21,468 and $18,000 for the three months ended March 31,2008 and 2007, respectively.  Thesecharges were recorded in selling, general and administrative expenses in theaccompanying consolidated statements of income. The agreement is for an indefinite term, and either party may terminateits receipt of some or all of the services thereunder upon 180 days’ notice atany time after January 1, 2009.

 

Pursuantto the Partnership’s Amended and Restated Services Agreement with AllianceEnergy Corp. (“Alliance”), the Partnership also provides certain administrative,accounting and information processing services, and the use of certainfacilities, to Alliance, an affiliate of the Partnership that is 90% owned bymembers of the Slifka family.  The incomefrom these services was approximately $216,504 and $132,000 for the threemonths ended March 31, 2008 and 2007, respectively.  These fees were recorded as an offset toselling, general and administrative expenses in the accompanying consolidatedstatements of income.  The agreement isfor an indefinite term, and Alliance may terminate its receipt of some or allof the services thereunder upon 180 days’ notice at any time after January 1,2009.

 

ThePartnership sells refined petroleum products to Alliance at prevailing marketprices at the time of delivery.  Sales toAlliance were approximately $5.8 million for each of the three monthsended March 31, 2008 and 2007.

 

TheGeneral Partner employs substantially all of the Partnership’s employees andcharges the Partnership for their services. The expenses for the three months ended March 31, 2008 and 2007,including payroll, payroll taxes and bonus accruals, were $7.7 million and$8.3 million, respectively.  ThePartnership also reimburses the General Partner for its contributions under theGeneral Partner’s 401(k) Savings and Profit Sharing Plan and the GeneralPartner’s qualified and non-qualified pension plans.

 

The table below presents trade receivables with Alliance, receivablesincurred in connection with the services agreements between Alliance and the Partnershipand GPC and the Partnership, as the case may be, and receivables from theGeneral Partner (in thousands):

 
| ** **                               | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                     |       |                     |       |                        |       |
| Receivables from Alliance                |       | $                        | 2,409      |                        | $          | 3,926 |   |
| Receivables from GPC                     |       | 364                      |       | 64                          |       |
| Receivables from the General Partner (1) |       | 261                      |       | 318                         |       |
| Total                                    |       | $                        | 3,034      |                        | $          | 4,308 |   |

 

----

(1)    Receivables from the GeneralPartner reflect the Partnership’s prepayment of payroll taxes and payrollaccruals to the General Partner.

 

11

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 8.**       Cash Distributions

** **

The Partnership intends to consider regular cashdistributions to unitholders on a quarterly basis, although there is noassurance as to the future cash distributions since they are dependent uponfuture cash flows, capital requirements, financial condition and otherfactors.  The Credit Agreement prohibitsthe Partnership from making cash distributions if any potential default orevent of default, as defined in the Credit Agreement, occurs or would resultfrom the cash distribution.

 

Within45 days after the end of each quarter, the Partnership will distribute all ofits available 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.

 

ThePartnership will make distributions of available cash from operating surplusfor any quarter during the subordination period as defined in its partnershipagreement in the following manner: firstly, 98.27% to the common unitholders,pro rata, and 1.73% to the General Partner, until the Partnership distributesfor each outstanding common unit an amount equal to the minimum quarterlydistribution for that quarter; secondly, 98.27% to the common unitholders, prorata, and 1.73% to the General Partner, until the Partnership distributes foreach outstanding common unit an amount equal to any arrearages in payment ofthe minimum quarterly distribution on the common units for any prior quartersduring the subordination period; thirdly, 98.27% to the subordinatedunitholders, pro rata, and 1.73% to the General Partner, until the Partnershipdistributes for each subordinated unit an amount equal to the minimum quarterlydistribution for that quarter; and thereafter, cash in excess of the minimumquarterly distributions is distributed to the unitholders and the GeneralPartner based on the percentages as provided below.

 

Asthe holder of the incentive distribution rights, the General Partner isentitled to incentive distributions if the amount that the Partnershipdistributes with respect to any quarter exceeds specified target levels shownbelow:

 
| ** **                     | ** ** | **Total Quarterly Distribution** | ** ** | **Marginal Percentage Interest in  Distributions** | ** ** |
|--------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                     | ** ** | **Target Amount**                     | ** ** | **Unitholders**                                                   | ** ** | **General Partner** | ** ** |
| Minimum Quarterly Distribution |       | $0.4125                                    |       | 98.27                                                             | %          | 1.73 | % |
| First Target Distribution      |       | Up  to $0.4625                             |       | 98.27                                                             | %          | 1.73 | % |
| Second Target Distribution     |       | above  $0.4625 up to $0.5375               |       | 85.27                                                             | %          | 14.73 | % |
| Third Target Distribution      |       | above  $0.5375 up to $0.6625               |       | 75.27                                                             | %          | 24.73 | % |
| Thereafter                     |       | above  $0.6625                             |       | 50.27                                                             | %          | 49.73 | % |

 

ThePartnership paid the following cash distribution during 2008 (in thousands,except per unit data):

 
| **Cash  Distribution  Payment Date** | ** ** | **Per Unit  Cash  Distribution** | ** ** | **Common  Units** | ** ** | **Subordinated  Units** | ** ** | **General  Partner** | ** ** | **General  Partner  Incentive  Distribution** | ** ** | **Total Cash  Distribution** | ** ** |
|-------------------------------------------|------------|---------------------------------------|------------|-------------------|------------|-------------------------|------------|----------------------|------------|-----------------------------------------------|------------|-----------------------------------|------------|
| 02/14/08(1)                               |       | $                                     | 0.4875     |              | $          | 3,621                   |       | $                    | 2,751      |                                          | $          | 112                               |       | $ | 50 |   | $ | 6,534 |   |
|                                           |            |                                       |            |                   |            |                         |            |                      |            |                                               |            |                                   |            |  |  |  |  |  |  |

 

----

(1)    This distribution of $0.4875per unit resulted in the Partnership reaching its second target distributionfor the fourth quarter of 2007.  As aresult, the General Partner received this incentive distribution.

 

12

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 8.**       Cash Distributions(continued)

** **

Inaddition, on April 23, 2008, the board of directors of the General Partnerdeclared a quarterly cash distribution of $0.4875 per unit for the period from January 1,2008 through March 31, 2008 ($1.95 per unit on an annualized basis) to thePartnership’s common and subordinated unitholders of record as of the close ofbusiness May 6, 2008.  This distribution resulted inthe Partnership reaching its second target distribution for the quarter ended March 31, 2008.

 

**Note 9.**       Segment Reporting

** **

ThePartnership is a wholesale and commercial distributor of gasoline, distillatesand residual oil whose business is organized within two operating segments,Wholesale and Commercial, based on the way the chief operating decision maker(CEO) manages the business and on the similarity of customers and expectedlong-term financial performance of each segment.  The accounting policies of the segments arethe same as those described in Note 2, “Summary of Significant AccountingPolicies,” in the Partnership’s Annual Report on Form 10-K for the yearended December 31, 2007.

 

Inthe Wholesale segment, the Partnership sells gasoline, home heating oil,diesel, kerosene and residual oil to unbranded retail gasoline stations andother resellers of transportation fuels, home heating oil retailers andwholesale distributors.  Generally,customers use their own vehicles or contract carriers to take delivery of theproduct at bulk terminals and inland storage facilities that the Partnershipowns or controls or with which it has throughput arrangements.

 

TheCommercial segment includes (1) sales and deliveries of unbrandedgasoline, home heating oil, diesel, kerosene, residual oil and small amounts ofnatural gas to customers in the public sector and to large commercial andindustrial customers, either through a competitive bidding process or throughcontracts of various terms, and (2) sales of custom blended distillatesand residual oil delivered by barges or from a terminal dock.  Commercial segment customers include federaland state agencies, municipalities, large industrial companies, many autonomousauthorities such as transportation authorities and water resource authorities,colleges and universities and a limited group of small utilities.  Unlike the Wholesale segment, in theCommercial segment, the Partnership generally arranges the delivery of theproduct to the customer’s designated location, typically hiring third-partycommon carriers to deliver the product.

 

ThePartnership evaluates segment performance based on net product margins beforeallocations of corporate and indirect operating costs, depreciation,amortization (including non-cash charges) and interest.  Based on the way the CEO manages the business,it is not reasonably possible for the Partnership to allocate the components ofoperating costs and expenses between the reportable segments.  Additionally, due to the commingled natureand uses of the Partnership’s assets, it is not reasonably possible for thePartnership to allocate assets between the two segments.  There were no intersegment sales for any ofthe periods presented below.

 

13

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 9.**       Segment Reporting(continued)

** **

Summarizedfinancial information for the Partnership’s reportable segments is presented inthe table below (in thousands):

 
| ** **                                 | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|
| ** **                                 | ** ** | **March 31,**               | ** ** |
| ** **                                 | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **Wholesale Segment:**                     |       |                             |       |   |   |
| Sales                                      |       | $                                | 2,596,835  |   | $ | 1,440,610 |   |
| Net product margin (1)                     |       |                             |       |   |   |
| Distillates                                |       | $                                | 23,092     |   | $ | 26,741 |   |
| Gasoline                                   |       | 8,544                            |       | 1,618 |   |
| Residual oil                               |       | 3,896                            |       | 9,884 |   |
| Total                                      |       | $                                | 35,532     |   | $ | 38,243 |   |
| **Commercial Segment:**                    |       |                             |       |   |   |
| Sales                                      |       | $                                | 124,157    |   | $ | 132,566 |   |
| Net product margin (1)                     |       | $                                | 2,606      |   | $ | 4,600 |   |
| **Combined sales and net product margin:** |       |                             |       |   |   |
| Sales                                      |       | $                                | 2,720,992  |   | $ | 1,573,176 |   |
| Net product margin (1)                     |       | $                                | 38,138     |   | $ | 42,843 |   |
| Depreciation allocated to cost of sales    |       | 2,522                            |       | 591 |   |
| **Combined gross profit**                  |       | $                                | 35,616     |   | $ | 42,252 |   |

 

----

(1)    Net product marginis a non-GAAP financial measure used by management and external users of thePartnership’s consolidated financial statements to assess the Partnership’sbusiness.  The table above reconciles netproduct margin on a combined basis to gross profit, a directly comparable GAAPmeasure.

 

A reconciliation of thetotals reported for the reportable segments to the applicable line items in theconsolidated financial statements is as follows (in thousands):

 
| ** **                                                              | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                              | ** ** | **March 31,**               | ** ** |
| ** **                                                              | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                                                    |       |                             |       |   |   |
| **Combined gross profit**                                               |       | $                                | 35,616     |   | $ | 42,252 |   |
| **Operating costs and expenses not allocated to  reportable segments:** |       |                             |       |   |   |
| Selling, general and administrative expenses                            |       | 11,073                           |       | 13,406 |   |
| Operating expenses                                                      |       | 9,025                            |       | 5,890 |   |
| Amortization expenses                                                   |       | 724                              |       | 358 |   |
| **Total operating costs and expenses**                                  |       | 20,822                           |       | 19,654 |   |
| Operating income                                                        |       | 14,794                           |       | 22,598 |   |
| Interest expense                                                        |       | (6,030                           | )          | (3,316 | ) |
| Gain on sale of investment                                              |       | —                           |       | 14,118 |   |
| Income tax expense                                                      |       | (145                             | )          | (525 | ) |
| **Net income**                                                          |       | $                                | 8,619      |   | $ | 32,875 |   |

 

Therewere no foreign sales for the three months ended March 31 2008 and2007.  The Partnership has no foreignassets.

 

14

----

 

**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 10.**     Investmentin Equity Securities

** **

The Partnership held an investment in NYMEX Holdings, Inc. whichwas accounted for under the provisions of SFAS No. 115, “Accounting for CertainInvestments in Debt and Equity Securities.” On March 6, 2007, the Partnership sold its investment in NYMEXHoldings, Inc. along with its NYMEX seats for approximately$15.3 million and realized a gain of approximately $14.1 million inthe consolidated statement of income for the three months ended March 31,2007.

 

**Note 11.**     Unitholders’Equity

** **

***Private Placement***

 

OnMarch 13, 2007, the Partnership entered into a Class B Unit PurchaseAgreement (the “Unit Purchase Agreement”) with Kayne Anderson MLP InvestmentCompany and funds managed by Tortoise Capital Advisors, LLC and Fiduciary AssetManagement, LLC (the “Purchasers”) to sell $50.0 million of Class B unitsrepresenting limited partner interests of the Partnership in a privateplacement (the “Private Placement”).  ThePartnership issued and sold 1,785,715 Class B units to the Purchaserspursuant to the Unit Purchase Agreement on May 9, 2007.  The Class B units were convertible intocommon units on a one-for-one basis.

 

***Class B Units Converted into Common Units***

 

OnMay 9, 2007, the Partnership issued and sold to the Purchasers 1,785,715 Class Bunits representing limited partner interests of the Partnership in a privateplacement for $50.0 million.  Aftergiving effect to a price reduction as discussed above, the purchase price forthe Class B units was approximately $49.2 million, or $27.53 per unit.  On May 22, 2007, the Class B unitsconverted into common units on one-for-one basis.

 

**Note 12.**     EnvironmentalLiabilities

** **

The Partnership currently owns or leases properties where refinedpetroleum products are being or have been handled.  These properties and the refined petroleumproducts handled thereon may be subject to federal and state environmental lawsand regulations.  Under such laws andregulations, the Partnership could be required to remove or remediatecontainerized hazardous liquids or associated generated wastes (includingwastes disposed of or abandoned by prior owners or operators), to clean upcontaminated property arising from the release of liquids or wastes to theenvironment, including contaminated groundwater, or to implement bestmanagement practices to prevent future contamination.

 

The Partnership maintains insurance of various types with varyinglevels of coverage that it considers adequate under the circumstances to coverits operations and properties.  Theinsurance policies are subject to deductibles that the Partnership considersreasonable and not excessive.  Inaddition, the Partnership has entered into indemnification agreements withvarious sellers in conjunction with several of its acquisitions.  Allocation of environmental liability is anissue negotiated in connection with each of the Partnership’s acquisitiontransactions.  In each case, thePartnership makes an assessment of potential environmental liability exposurebased on available information.  Based onthat assessment and relevant economic and risk factors, the Partnershipdetermines whether to, and the extent to which it will, assume liability forexisting environmental conditions.

 

15

----

 

**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 12.**     EnvironmentalLiabilities (continued)

** **

In connection with the November 2007 acquisition of ExxonMobil OilCorporation’s (“ExxonMobil”)  GlenwoodLanding and Inwood, New York terminals, the Partnership assumed certainenvironmental liabilities, including the remediation obligations under remedialaction plans submitted by ExxonMobil to and approved by the NYDEC with respectto both terminals.  As a result, thePartnership recorded, on an undiscounted basis, total environmental liabilitiesof approximately $1.2 million of which $0.4 million was recorded as acurrent liability and $0.8 million was recorded as a long-term liabilityon the accompanying consolidated balance sheet at March 31, 2008.  The remedial action plans submitted byExxonMobil will be implemented by Global Companies LLC.  The Partnership does not believe thatcompliance with the terms thereof will result in material costs in excess ofthe environmental reserve or have a material impact on its operations.

 

In connection with the May 2007 acquisition of ExxonMobil’s Albanyand Newburgh, New York and Burlington, Vermont terminals, the Partnershipassumed certain environmental liabilities, including the remediationobligations under a proposed remedial action plan submitted by ExxonMobil tothe New York Department of Environmental Conservation (“NYDEC”) with respect tothe Albany, New York terminal.  As aresult, the Partnership recorded, on an undiscounted basis, total environmentalliabilities of approximately $8.0** **million,of which $0.5 million was recorded as a current liability and$7.5 million was recorded as a long-term liability on the accompanyingconsolidated balance sheet at March 31, 2008.  NYDEC has reviewed the proposed remedialaction plan submitted by ExxonMobil and provided comments to Global CompaniesLLC regarding the plan.  Global CompaniesLLC prepared a response to NYDEC’s comments. Subject to NYDEC’s approval of the proposed remedial action plan, thePartnership does not believe that compliance with the terms thereof will resultin material costs in excess of the environmental reserve or have a materialimpact on its operations.

 

In connection with the 2006 acquisition of its Macungie, Pennsylvaniaterminal (the “Global Macungie Terminal”), the Partnership assumed certainexisting environmental liabilities at the terminal.  The Partnership did not accrue for thesecontingencies as it believes that the aggregate amount of these liabilitiescannot be reasonably estimated at this time. The Partnership also executed an Administrative Order on Consent (“AOC”)with the U.S. Environmental Protection Agency, Region III (“EPA, Region III”)requiring certain investigatory activities at the Global MacungieTerminal.  Although the Partnershipcannot predict the outcome of the investigation of the Global MacungieTerminal, based upon current information, the Partnership does not anticipatethat the outcome will have a material adverse effect on it.  Furthermore, the Partnership does not believethat compliance with the terms of the AOC executed by it will result inmaterial costs or have a material impact on the Partnership’s operations.

 

The Partnership’s estimates used in these reserves are based on allknown facts at the time and its assessment of the ultimate remedial actionoutcomes.  Among the many uncertaintiesthat impact the Partnership’s estimates are the necessary regulatory approvalsfor, and potential modification of, its remediation plans, the amount of dataavailable upon initial assessment of the impact of soil or water contamination,changes in costs associated with environmental remediation services andequipment and the possibility of existing legal claims giving rise toadditional claims.  Therefore, althoughthe Partnership believes that the reserve is adequate, no assurances can bemade that any costs incurred in excess of this reserve or outside ofindemnifications or not otherwise covered by insurance would not have amaterial adverse effect on the Partnership’s financial condition, results ofoperations or cash flows.

 

**Note 13.**     Long-TermIncentive Plan

** **

InOctober 2005, the General Partner adopted a Long-Term Incentive Plan (“LTIP”)whereby 564,242 common units were authorized for issuance.  The LTIP provides for awards to employees,consultants and directors of the General Partner and employees and consultantsof affiliates of the Partnership who perform services for the Partnership.  The LTIP allows for the award of unitoptions, unit appreciation rights, restricted units, phantom units anddistribution equivalent rights (“DERs”).

 

16

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 13.**     Long-TermIncentive Plan (continued)

** **

OnAugust 14, 2007, the Compensation Committee of the board of directors ofthe General Partner granted awards of phantom units and associated DERs underthe LTIP to certain employees and non-employee directors of the GeneralPartner.  The phantom units granted willcliff vest on December 31, 2009 and become payable on a one-for-one basisin common units of the Partnership (or cash equivalent) upon the achievement ofcertain performance goals over the vesting period.  The DERs that were granted in tandem with thephantom units will vest and become payable in cash simultaneously with thevesting of the phantom units.  Anyphantom units and associated DERs that have not vested as of the end of thecliff vesting period will be forfeited. The Partnership currently intends and reasonably expects to issue anddeliver the common units upon vesting.

 

SFASNo. 123(R) requires compensation cost for an award of share-basedemployee compensation classified as equity, as is the case of the Partnership’saward, to be recognized over the requisite service period.  The requisite service period for thePartnership is from August 14, 2007, the grant date, through December 31,2009 (the “Requisite Service Period”). The Partnership will recognize as compensation expense the value of theportion of the award that is ultimately expected to vest over the RequisiteService Period on a straight-line basis. In accordance with SFAS No. 123(R), the Partnership estimatedforfeitures at the time of grant.  Suchestimates, which were based on the Partnership’s service and performancehistory, will be revised, if necessary, in subsequent periods if actualforfeitures differ from estimates.

 

Forthe three months ended March 31, 2008, the Partnership recordedcompensation expense of approximately $0.2 million which is included inselling, general and administrative expenses in the accompanying consolidatedstatements of income.  The totalcompensation cost related to the non-vested awards not yet recognized at March 31,2008 is approximately $1.4 million and is expected to be recognizedratably over the remaining Requisite Service Period.  The Company recorded no unit-basedcompensation for the three months ended March 31, 2007 as no otherawards of any kind had been granted under the LTIP during that period.

 

**Note 14.**     FairValue Measurements

** **

OnJanuary 1, 2008, the Partnership adopted SFAS No. 157, “Fair ValueMeasurements” (“SFAS No. 157”) for its financial assets and financialliabilities.  The adoption of SFAS No. 157did not have a material impact on the Partnership’s fair valuemeasurements.  SFAS No. 157 definesfair value as the price that would be received to sell an asset or paid totransfer a liability in the principal or most advantageous market for the assetor liability in an orderly transaction between market participants at themeasurement date.  SFAS No. 157establishes a fair value hierarchy, which prioritizes the inputs used inmeasuring fair value into the following three levels:

 
| Level  1 | — | Observable  inputs such as quoted prices in active markets for identical assets or  liabilities.                                                                                                                                                                                                              |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                          |
| Level  2 | — | Inputs  other than the quoted prices in active markets that are observable for assets  or liabilities, either directly or indirectly. These include quoted prices  for similar assets or liabilities in active markets and quoted prices for  identical or similar assets or liabilities in inactive markets. |
|     |   |                                                                                                                                                                                                                                                                                                          |
| Level  3 | — | Unobservable  inputs based on the entity’s own assumptions.                                                                                                                                                                                                                                              |

 

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 14.**     FairValue Measurements (continued)

** **

Thefollowing table presents those financial assets and financial liabilitiesmeasured at fair value on a recurring basis as of March 31, 2008 (inthousands):

 
| ** **                                    | ** ** | **Fair Value** | ** ** | ** **                                       | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------|------------|---------------------|------------|--------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                    | ** ** | **March 31,**  | ** ** | **Fair Value Measurements Using** | ** ** |
| ** **                                    | ** ** | **2008**            | ** ** | **Level 1**                                 | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Assets:**                                   |       |                |       |                                             |       |             |       |             |       |
| NYMEX contracts                               |       | $                   | 4,531      |                                             | $          | 4,531            |       | $                | —     |   | $ | — |   |
| Hedged inventories                            |       | 243,177             |       | —                                           |       | 243,177          |       | —           |       |
| Fair value of forward fixed price contracts   |       | 231                 |       | —                                           |       | 231              |       | —           |       |
| Swap agreements and options                   |       | 1,434               |       | 509                                              |       | 925              |       | —           |       |
| Total assets                                  |       | $                   | 249,373    |                                             | $          | 5,040            |       | $                | 244,333    |   | $ | — |   |
|                                          |       |                |       |                                             |       |             |       |             |       |
| **Liabilities:**                              |       |                |       |                                             |       |             |       |             |       |
| Obligations on forward fixed price  contracts |       | $                   | 6,918      |                                             | $          | —           |       | $                | 6,918      |   | $ | — |   |
| Swap agreements                               |       | 272                 |       | —                                           |       | 272              |       | —           |       |
| Interest rate collar                          |       | 3,725               |       | —                                           |       | 3,725            |       | —           |       |
| Total liabilities                             |       | $                   | 10,915     |                                             | $          | —           |       | $                | 10,915     |   | $ | — |   |

** **

**Note 15.**     RecentAccounting Pronouncements

** **

In September 2006, the Financial Accounting Standards Board(“FASB”) issued SFAS No. 157. This statement defines fair value, establishes guidelines for measuringfair value and requires additional disclosures regarding fair valuemeasurements.  SFAS No. 157 applies only to fair valuemeasurements currently required or permitted by other accounting standards andis expected to increase the consistency of those measurements.  In February 2008, the FASBdeferred the effective date of SFAS No. 157 for all non-financial assetsand non-financial liabilities, except those that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually) until January 1,2009.  The Partnership is in the processof evaluating the impact of SFAS No. 157 on its non-recurring fair valuemeasurements.  The Partnership adopted SFASNo. 157 on January 1, 2008 for its financial assets and liabilities measured at fair value on a recurringbasis.  The partial adoption of SFAS No. 157for financial assets and liabilities did not have a material impact on thePartnership’s consolidated financial statements.  See Note 14.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Optionfor Financial Assets and Financial Liabilities” (“SFAS No. 159”) which providesentities with an option to measure many financial instruments and certain otheritems at fair value that are not currently measured at fair value.  The election to use the fair value option isavailable when an entity first recognizes a financial asset or financialliability or upon entering into a firm commitment.  Subsequent changes in fair value must berecorded in earnings.  This statementalso establishes presentation and disclosure requirements designed tofacilitate comparisons between entities that choose different measurementattributes for similar types of assets and liabilities.  The Partnership adopted SFAS No. 159 onJanuary 1, 2008 and elected not to use the fair value option for its existingfinancial assets and liabilities and, therefore, the adoption of SFAS No. 159did not have any impact on the Partnership’s consolidated financial statements.

 

InDecember 2007, the FASB issued SFAS No. 141 (Revised 2007), “BusinessCombinations” (“SFAS No. 141(R)”) which retains the fundamentalrequirements of the original pronouncement requiring that the purchase methodbe used for all business combinations. SFAS No. 141(R) defines the acquirer as the entity thatobtains control of one or more businesses in the business combination,establishes the acquisition date as the date that the acquirer achieves controland requires the acquirer to recognize the assets acquired, liabilities assumedand any noncontrolling interest at their fair values as of the acquisitiondate.  SFAS No. 141(R) alsorequires that acquisition-related costs be recognized separately from theacquisition.  SFAS No. 141(R) appliesprospectively to business combinations for which the acquisition date occurs infiscal years beginning after December 15, 2008.  The Partnership is in the process ofevaluating the impact of SFAS No. 141(R) on its consolidatedfinancial statements.

 

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 15.**     RecentAccounting Pronouncements (continued)

** **

InMarch 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments andHedging Activities — An Amendment of FASB Statement No. 133” (“SFASNo. 161”) which enhances the requirements under SFAS No. 133, “Accounting for Derivatives and HedgingActivities.”  SFAS No. 161requires enhanced disclosures about an entity’s derivatives and hedgingactivities and how they affect an entity’s financial position, financial performanceand cash flows.  SFAS No. 161 willbe effective for fiscal years and interim periods beginning after November 15,2008.  The Partnership is in the processof evaluating the impact of SFAS No. 161 on its consolidated financialstatements.

 

InMarch 2008, the Emerging Issues Task Force approved consensus on EITFIssue No. 07-04, “Application of the Two-Class Method under FASB Statement No. 128 to MasterLimited Partnerships” (“EITF 07-04”) which specifies the treatment of earningsper unit calculations when incentive distributions rights exist in masterlimited partnerships.  UnderEITF 07-04, when earnings exceedcash distributions, undistributed earnings are to be allocated to the generalpartner, limited partners and holders of the incentive distribution rightsbased on the distribution formula for available cash set forth in thepartnership agreement.  Conversely, whencash distributions exceed earnings, net income (or loss) would be reduced (orincreased) by distributions to the general partner, limited partners andholders of incentive distribution rights. The excess of distributions over earnings would be allocated to thegeneral partner and limited partners based on their respective sharing oflosses set forth in the partnership agreement. EITF 07-04 will beeffective for fiscal years and interim periods beginning after December 15,2008 and will be applied retrospectively. The Partnership is in the process of evaluating the impact of EITF 07-04 on its computation of earnings per unit.

 

**Note 16.**     SubsequentEvent

** **

The board of directors of the General Partner declared a quarterly cashdistribution of $0.4875 per unit ($1.95 per unit on an annualized basis) forthe period from January 1, 2008 through March 31, 2008.  On May 15, 2008, the Partnership will pay this cash distribution to itscommon and subordinated unitholders of record as of the close of business May 6, 2008.

 

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

 

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

 

**Forward-LookingStatements**

** **

This Quarterly Report on Form 10-Q contains certainforward-looking statements within the meaning of the federal securitieslaws.  These forward-lookingstatements are identified as any statements that do not relate strictly tohistorical or current facts and can generally be identified by the useof forward-looking terminology including “may,” “believe,” “expect,” “anticipate,”“estimate,” “continue” or other similar words. Such statements may discuss future expectations for, or containprojections of, results ofoperations, financial condition or our ability to make distributions tounitholders or state other forward-looking information.  Forward-looking statements are not guaranteesof performance.  Although webelieve these forward-looking statements are based on reasonable assumptions,statements made regarding future results are subject to a number ofassumptions, uncertainties and risks, many of which are beyond our control,which may cause future results to be materially different from the resultsstated or implied in this document. These risks and uncertainties include, among other things:

 

·     We may not have sufficient cash fromoperations to enable us to pay the minimum quarterly distribution followingestablishment of cash reserves and payment of fees and expenses, includingpayments to our general partner.

 

·     A significant decrease in demand forrefined petroleum products in the areas served by our storage facilities wouldreduce our ability to make distributions to our unitholders.

 

·     Our sales of home heating oil andresidual oil could be significantly reduced by conversions to natural gas whichconversions could have an adverse effect on our results of operations and cashavailable for distribution to our unitholders.

 

·     Warmer weather conditions could adverselyaffect our results of operations and cash available for distribution to ourunitholders.

 

·     Our risk management policies cannoteliminate all commodity risk.  Inaddition, any noncompliance with our risk management policies could result insignificant financial losses.

 

·     We are exposed to trade credit risk inthe ordinary course of our business activities.

 

·     Due to our lack of asset and geographic diversification,adverse developments in the terminals that we use or in our operating areascould reduce our ability to make distributions to our unitholders.

 

·     We are exposed to performance risk in oursupply chain.

 

·     Our general partner and its affiliateshave conflicts of interest and limited fiduciary duties, which may permit themto favor their own interests to the detriment of unitholders.

 

·     Unitholders have limited voting rightsand are not entitled to elect our general partner or its directors or initiallyto remove our general partner without its consent, which could lower thetrading price of our common units.

 

·     Unitholders may be required to pay taxeson their share of our income even if they do not receive any cash distributionsfrom us.

 

Additional information about risks and uncertainties that could causeactual results to differ materially from forward-looking statements iscontained in Part I, Item 1A, “Risk Factors,” in our Annual Report onForm 10-K for the year ended December 31, 2007 and Part II,Item 1A, “Risk Factors,” in this Quarterly Report on Form 10-Q.

 

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All forward-looking statements included in this Form 10-Q and allsubsequent written or oral forward-looking statements attributable to us orpersons acting on our behalf are expressly qualified in their entirety by thesecautionary statements.  Theforward-looking statements speak only as of the date made, other than asrequired by law, and we undertake no obligation to publicly update or reviseany forward-looking statements, whether as a result of new information, futureevents or otherwise.

 

**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 gasoline, distillates (such ashome heating oil, diesel and kerosene) and residual oil to wholesalers,retailers and commercial customers in the Northeast.  For the three months ended March 31,2008, we sold approximately $2.7 billion of refined petroleum products andsmall amounts of natural gas.

 

Wepurchase our refined petroleum products primarily from domestic and foreignrefiners (wholesalers), traders and producers and sell these products in two segments,Wholesale and Commercial.  Like mostindependent marketers of refined petroleum products, we base our pricing onspot physical prices and routinely use the NYMEX or derivatives to hedge ourcommodity risk inherent in buying and selling energy commodities.  Through the use of regulated exchanges orderivatives, we maintain a position that is substantially balanced betweenpurchased volumes and sales volumes or future delivery obligations.  We earn a margin by selling the product forphysical delivery to third parties.

 

***Productsand Operational Structure***

*** ***

Ourproducts include gasoline, distillates and residual oil.  We sell gasoline to unbranded retail gasolinestations and other resellers of transportation fuels.  The distillates we sell are used primarilyfor fuel for trucks and off-road construction equipment and for space heatingof residential and commercial buildings. 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.  In addition, we sell bunker fuel, which wecan custom blend, to cruise ships, bulk carriers and fishing fleets.  We have increased our sales in thenon-weather sensitive components of our business, such as transportation fuels;however, we are still subject to the impact that warmer weather conditions mayhave on our home heating oil and residual oil sales.

 

Ourbusiness is divided into two segments:

 

·     *Wholesale.*  This segment includes sales of gasoline,distillates and residual oil to unbranded retail gasoline stations and otherresellers of transportation fuels, home heating oil retailers and wholesaledistributors.

 

·     *Commercial.*  This segment includes sales and deliveries ofunbranded gasoline, distillates, residual oil and small amounts of natural gasto customers in the public sector and to large commercial and industrialcustomers, primarily either through a competitive bidding process or throughcontracts of various terms.  This segmentalso purchases, custom blends, sells and delivers bunker fuel and diesel tocruise ships, bulk carriers and fishing fleets generally by barges.

 

Our business activities are substantially comprised of purchasing, storing,terminalling and selling refined petroleum products.  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 market for delivery to customers at higherprices in the future.  In a backwardatedmarket (when product prices for future deliveries are lower than currentdeliveries), we attempt to minimize our inventories to reduce commodity riskand maintain or increase net product margins. See Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-Kfor the year ended December 31, 2007 for additionalinformation related to commodity risk.

 

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***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 results of operations and financialcondition depend, in part, upon the following:

 

·     *We commit substantial resources to pursuingacquisitions, though there is no certainty that we will successfully completeany acquisitions or receive the economic results we anticipate from completedacquisitions.* 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.  Our growth largelydepends on our ability to make accretive acquisitions.  We may be unable to make such accretiveacquisitions for a number of reasons, including, but not limited to, thefollowing:  (1) we are unable toidentify attractive acquisition candidates or negotiate acceptable purchase contracts;(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 acquisitionsthat at the time of consummation we believe will be accretive, but that ultimatelymay not be accretive.  If any of theseevents 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.

 

·     *Our financial results are generally betterin the first and fourth quarters of the calendar year. *Demand for somerefined petroleum products, specifically home heating oil and residual oil forspace heating purposes, is generally higher during November through March thanduring April through October.  Weobtain a significant portion of our sales during these winter months.  Therefore, our results of operations for thefirst and fourth calendar quarters are generally better than for the second andthird quarters.  With lower cash flowduring the second and third calendar quarters, we may be required to borrowmoney in order to maintain current levels of distributions to our unitholders.

 

·     *Warmer weather conditions could adverselyaffect our results of operations and financial condition. *Weatherconditions generally have an impact on the demand for both home heating oil andresidual oil.  Because we supplydistributors whose customers depend on home heating oil and residual oil forspace heating purposes during the winter, warmer-than-normal temperaturesduring the first and fourth calendar quarters in the Northeast can decrease thetotal volume we sell and the gross profit realized on those sales.

 

·     *Energy efficiency, new technology andalternative fuels could reduce demand for our products.* Increased conservation and technologicaladvances have adversely affected the demand for home heating oil and residualoil.  Consumption of residual oil has steadilydeclined over the last three decades.  Wecould face additional competition from alternative energy sources as a resultof future government-mandated controls or regulation further promoting the useof cleaner fuels.  End users who aredual-fuel users have the ability to switch between residual oil and naturalgas.  Other end users may elect toconvert to natural gas.  During a periodof increasing residual oil prices relative to the prices of natural gas,dual-fuel customers may switch and other end users may convert to naturalgas.  Residential users of home heatingoil may also convert to natural gas. Such switching or conversion could have an adverse effect on our resultsof operations and financial condition.

 

·     *New, stricter environmental laws and regulationscould significantly increase our costs, which could adversely affect ourresults of operations and financial condition.*  Our operations are subject to federal, stateand local laws and regulations regulating product quality specifications andother environmental matters.  The trendin environmental regulation is towards more restrictions and limitations onactivities that may affect the environment. Our business may be adversely affected by increased costs andliabilities resulting from such stricter laws and regulations.  We try to anticipate future regulatoryrequirements that might be imposed and plan accordingly to remain in compliancewith changing environmental laws and regulations and to minimize the costs ofsuch compliance.  However, there can beno assurances as to the timing and type of such changes in existing laws or thepromulgation of new laws or the amount of any required expenditures associatedtherewith.

 

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**Results of Operations**

** **

***EvaluatingOur Results of Operations***

*** ***

Our management usesa variety 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) heatingdegree days, (6) adjusted net income per diluted limited partner unit, (7) earningsbefore interest, taxes, depreciation and amortization (“EBITDA”), adjustedEBITDA and net income as adjusted for one-time gains and (8) distributablecash flow.

 

*NetProduct 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 unbranded gasoline, distillates, residual oil and natural gas.  Product costs include the cost of acquiringthe refined petroleum products and natural gas that we sell and all associatedcosts including shipping and handling costs to bring such products to the pointof sale.  Net product margin is anon-GAAP financial measure used by management and external users of ourconsolidated financial statements to assess our business.  Net product margin should not be consideredas an alternative to net income, operating income, cash flow from operations,or any other measure of financial performance presented in accordance withGAAP.  In addition, our net productmargin may not be comparable to net product margin or a similarly titledmeasure of other companies.

 

*Gross Profit*

 

Wedefine gross profit as our sales minus product costs and terminal depreciationexpense allocated to cost of sales. Sales include sales of unbranded gasoline, distillates, residual oil andnatural gas.  Product costs include thecost of acquiring the refined petroleum products that we sell and allassociated 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, discretionarybonuses, non-interest financing costs, professional fees and informationtechnology expenses.  Employee-relatedexpenses including employee salaries, discretionary bonuses and related payrolltaxes, benefits and pension and 401(k) plan expenses are paid by ourgeneral partner which, in turn, is reimbursed for these expenses by us.

 

*OperatingExpenses*

* *

Operatingexpenses are costs associated with the operation of the terminals used in ourbusiness.  Lease payments and storageexpenses, maintenance and repair, utilities, taxes, labor and labor-relatedexpenses comprise 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.

 

*DegreeDay*

* *

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.

 

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*Adjusted Net Income Per Diluted Limited Partner Unit*

 

We use adjusted net income per diluted limited partner unit to measureour financial performance 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 common and subordinated units, or limitedpartner units, during the period.  Netincome per diluted limited partner unit as dictated by EITF 03-06 istheoretical and pro forma in nature and does not reflect the economicprobabilities of whether earnings for an accounting period would or could bedistributed to unitholders.  Thepartnership agreement does not provide for the quarterly distribution of netincome; rather, it provides for the distribution of available cash, which is acontractually defined term that generally means all cash on hand at the end ofeach quarter after establishment of sufficient cash reserves required tooperate our business.  Accordingly, thedistributions we historically paid and will pay in future periods are notimpacted by net income per diluted limited partner unit as dictated byEITF 03-06.  Adjusted net income perdiluted limited partner unit is a non-GAAP financial measure and should not beconsidered as an alternative to net income per diluted limited partner unit orany other measure of financial performance presented in accordance withGAAP.  In addition, our adjusted netincome per diluted limited partner unit may not be comparable to the adjustednet incomer per diluted limited partner unit or similarly titled measure ofother companies.

 

*EBITDA,Adjusted EBITDA and Net Income as Adjusted for One-time Gains*

* *

EBITDA,adjusted EBITDA and net income as adjusted for one-time gains are used assupplemental financial measures by management and external users of ourconsolidated financial statements, such as investors, commercial banks andresearch analysts, to assess:

 

·     ourcompliance with certain financial covenants included in our debt agreements;

 

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

 

·     our abilityto generate cash sufficient to pay interest on our indebtedness and to makedistributions to our partners;

 

·     ouroperating performance and return on invested capital as compared to those ofother companies in the wholesale marketing and distribution of refinedpetroleum products business, without regard to financing methods and capitalstructure; and

 

·     theviability of acquisitions and capital expenditure projects and the overallrates of return of alternative investment opportunities.

 

AdjustedEBITDA and net income as adjusted for one-time gains reflect the exclusion ofthe $14.1 million gain on investment in the first quarter of 2007 (seeNote 10 of Notes to Consolidated Financial Statements).  EBITDA, adjusted EBITDA and net income asadjusted for one-time gains should not be considered alternatives to netincome, operating income, cash flow from operating activities or any othermeasure of financial performance or liquidity presented in accordance withGAAP.  EBITDA, adjusted EBITDA and netincome as adjusted for one-time gains exclude some, but not all, items thataffect net income, and these measures may vary among other companies.  Therefore, EBITDA, adjusted EBITDA and netincome as adjusted for one-time gains may not be comparable to similarly titledmeasures of other companies.

 

*DistributableCash Flow*

* *

Distributablecash flow is an important non-GAAP financial measure for our limited partnerssince it serves as an indicator of our success in providing a cash return ontheir investment.  Specifically, thisfinancial measure indicates to investors whether or not we have generatedsufficient cash flow on a current or historic level that can sustain or supportan increase in our quarterly cash distribution. Distributable cash flow is a quantitative standard used by theinvestment community with respect to publicly traded partnerships.  Distributable cash flow reflects theexclusion of the $14.1 million gain on investment in the first quarter of2007 (see Note 10 of Notes to Consolidated Financial Statements).  Distributable cash flow is a non-GAAPfinancial 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 

 

24

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GAAP.  In addition, our distributable cash flow maynot be comparable to distributable cash flow or similarly titled measure ofother companies.

 

***ThreeMonths Ended March 31, 2008 and 2007***

*** ***

In the first quarter of 2008, we experiencedthe following events which, we believe, led to a significant negative impact onour results of operations:

 

1.    Refinedpetroleum product prices continued to rise which we believe contributed to:

 

·     theconversion by end users to other products (primarily natural gas) from residualfuel and heating oil;

 

·     energyconservation; and

 

·     shifts tomore fuel-efficient, hybrid or alternative fuel vehicles and changes in drivinghabits.

 

2.    Adversemarket conditions in our markets, including volatility and backwardation, ledto lower margins and intensified competition from other wholesalers.

 

3.    Temperaturesfor the first quarter of 2008 were warmer than normal and warmer than the firstquarter of 2007.

 

4.    We had fewerfixed priced sales of heating oil in the first quarter of 2008 than incomparable prior periods.

 

5.    Theopportunistic conversion of certain gasoline markets to ethanol put us in atemporarily disadvantaged competitive position while our terminal infrastructurewas being converted.

 

6.    Temporarylogistical supply issues related to rail capacity continued into the firstquarter of 2008 which adversely affected the performance of our Burlington,Vermont facility.

 

***During the first quarter ended March 31, 2008, we experiencedhigher sales volumes and higher revenues, primarily due to our 2007acquisitions of five refined petroleum products terminals from ExxonMobil.  Refined petroleum product and natural gasprices rose during the three months ended March 31, 2008 compared to thesame period in 2007.  Specifically,prices for gasoline, heating oil, residual oil and natural gas increased 24%,62%, 59% and 30%, respectively, compared to the same period in 2007.  Temperatures were 6% warmer than normal and7% warmer than last year as measured by aggregate heating degree days.***

*** ***

***25***

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*** ***

***KeyPerformance Indicators***

*** ***

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 and gallons in thousands, except per unitamounts):

 
| ** **                                                | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                | ** ** | **March 31,**               | ** ** |
| ** **                                                | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                                      |       |                             |       |   |   |
| Net income as adjusted for one-time gains (1)             |       | $                                | 8,619      |   | $ | 18,757 |   |
|                                                      |       |                             |       |   |   |
| Adjusted net income per diluted limited  partner unit (2) |       | $                                | 0.65       |   | $ | 2.85 |   |
|                                                      |       |                             |       |   |   |
| Adjusted EBITDA (3)                                       |       | $                                | 18,476     |   | $ | 23,867 |   |
|                                                      |       |                             |       |   |   |
| Distributable cash flow (4)                               |       | $                                | 11,809     |   | $ | 19,259 |   |
|                                                      |       |                             |       |   |   |
| **Wholesale Segment:**                                    |       |                             |       |   |   |
| Volume (gallons)                                          |       | 1,002,323                        |       | 810,822 |   |
| Sales                                                     |       | $                                | 2,596,835  |   | $ | 1,440,610 |   |
| Net product margin (5)                                    |       |                             |       |   |   |
| Distillates                                               |       | $                                | 23,092     |   | $ | 26,741 |   |
| Gasoline                                                  |       | 8,544                            |       | 1,618 |   |
| Residual oil                                              |       | 3,896                            |       | 9,884 |   |
| Total                                                     |       | $                                | 35,532     |   | $ | 38,243 |   |
| **Commercial Segment:**                                   |       |                             |       |   |   |
| Volume (gallons)                                          |       | 61,811                           |       | 95,550 |   |
| Sales                                                     |       | $                                | 124,157    |   | $ | 132,566 |   |
| Net product margin (5)                                    |       | $                                | 2,606      |   | $ | 4,600 |   |
| **Combined sales and net product margin:**                |       |                             |       |   |   |
| Sales                                                     |       | $                                | 2,720,992  |   | $ | 1,573,176 |   |
| Net product margin (5)                                    |       | $                                | 38,138     |   | $ | 42,843 |   |
| Depreciation allocated to cost of sales                   |       | 2,522                            |       | 591 |   |
| **Combined gross profit**                                 |       | $                                | 35,616     |   | $ | 42,252 |   |
|                                                      |       |                             |       |   |   |
| **Weather conditions:**                                   |       |                             |       |   |   |
| Normal heating degree days                                |       | 2,901                            |       | 2,870 |   |
| Actual heating degree days                                |       | 2,728                            |       | 2,918 |   |
| Variance from normal heating degree days                  |       | (6                               | )%         | 2 | % |
| Variance from prior period actual heating  degree days    |       | (7                               | )%         | 11 | % |

 

----

(1)    Netincome as adjusted for one-time gains is a non-GAAP financial measure which isdiscussed above under “—EvaluatingOur Results of Operations.”  The table belowpresents a reconciliation of net income as adjusted for one-time gains to themost directly comparable GAAP financial measure.

(2)    Adjustednet income per diluted limited partner unit is a non-GAAP financial measurewhich is discussed above under “—EvaluatingOur Results of Operations.”  The tablebelow presents a reconciliation of adjusted net income per diluted limitedpartner unit to the most directly comparable GAAP financial measure.

(3)    AdjustedEBITDA is a non-GAAP financial measure which is discussed above under “—EvaluatingOur Results of Operations.”  The tablebelow presents reconciliations of adjusted EBITDA to the most directlycomparable GAAP financial measures.

(4)    Distributablecash flow is a non-GAAP financial measure which is discussed above under “—EvaluatingOur Results of Operations.”  The tablebelow presents reconciliations of distributable cash flow to the most directlycomparable GAAP financial measures.

(5)    Netproduct margin is a non-GAAP financial measure which is discussed above under “—EvaluatingOur Results of Operations.”  The tableabove reconciles net product margin on a combined basis to gross profit, adirectly comparable GAAP financial measure.

 

26

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The following table presents a reconciliation of netincome as adjusted for one-time gains to the most directly comparable GAAPfinancial measure on a historical basis for each period presented:

 
| ** **                                                                      | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                      | ** ** | **March 31,**               | ** ** |
| ** **                                                                      | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **Reconciliation of net income to net income as  adjusted for one-time gains:** |       |                             |       |   |   |
| Net income                                                                      |       | $                                | 8,619      |   | $ | 32,875 |   |
| Gain on sale of investment                                                      |       | —                           |       | (14,118 | ) |
| Net income as adjusted for one-time gains                                       |       | $                                | 8,619      |   | $ | 18,757 |   |

 

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 each periodpresented:

 
| ** **                                                                                                                  | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                  | ** ** | **March 31,**               | ** ** |
| ** **                                                                                                                  | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **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                                                           |       | $                                | 0.63       |   | $ | 1.75 |   |
| Dilutive impact of theoretical distribution of earnings under  EITF 03-06                                              |       | 0.02                             |       | 1.10 |   |
| Adjusted net income per diluted limited partner unit                                                                        |       | $                                | 0.65       |   | $ | 2.85 |   |

 

The following tablepresents reconciliations of EBITDA and adjusted EBITDA to the most directlycomparable GAAP financial measures on a historical basis for each period presented(in thousands):

 
| ** **                                                                                       | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                       | ** ** | **March 31,**               | ** ** |
| ** **                                                                                       | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **Reconciliation of net income to EBITDA and  adjusted EBITDA:**                                 |       |                             |       |   |   |
| Net income                                                                                       |       | $                                | 8,619      |   | $ | 32,875 |   |
| Depreciation and amortization                                                                    |       | 3,682                            |       | 1,269 |   |
| Interest expense                                                                                 |       | 6,030                            |       | 3,316 |   |
| Income tax expense                                                                               |       | 145                              |       | 525 |   |
| EBITDA                                                                                           |       | 18,476                           |       | 37,985 |   |
| Gain on sale of investment                                                                       |       | —                           |       | (14,118 | ) |
| Adjusted EBITDA                                                                                  |       | $                                | 18,476     |   | $ | 23,867 |   |
|                                                                                             |       |                             |       |   |   |
| **Reconciliation of cash flow provided by  operating activities to EBITDA and adjusted EBITDA:** |       |                             |       |   |   |
| Cash flow provided by operating activities                                                       |       | $                                | 97,817     |   | $ | 140,728 |   |
| Net changes in operating assets and liabilities                                                  |       | (85,516                          | )          | (106,584 | ) |
| Interest expense                                                                                 |       | 6,030                            |       | 3,316 |   |
| Income tax expense                                                                               |       | 145                              |       | 525 |   |
| EBITDA                                                                                           |       | 18,476                           |       | 37,985 |   |
| Gain on sale of investment                                                                       |       | —                           |       | (14,118 | ) |
| Adjusted EBITDA                                                                                  |       | $                                | 18,476     |   | $ | 23,867 |   |

 

27

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

 
| ** **                                                                                    | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                    | ** ** | **March 31,**               | ** ** |
| ** **                                                                                    | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **Reconciliation of net income to distributable  cash flow:**                                 |       |                             |       |   |   |
| Net income                                                                                    |       | $                                | 8,619      |   | $ | 32,875 |   |
| Depreciation and amortization                                                                 |       | 3,682                            |       | 1,269 |   |
| Gain on sale of investment                                                                    |       | —                           |       | (14,118 | ) |
| Maintenance capital expenditures                                                              |       | (492                             | )          | (767 | ) |
| Distributable cash flow                                                                       |       | $                                | 11,809     |   | $ | 19,259 |   |
|                                                                                          |       |                             |       |   |   |
| **Reconciliation of cash flow provided by  operating activities to distributable cash flow:** |       |                             |       |   |   |
| Cash flow provided by operating activities                                                    |       | $                                | 97,817     |   | $ | 140,728 |   |
| Net changes in operating assets and liabilities                                               |       | (85,516                          | )          | (106,584 | ) |
| Gain on sale of investment                                                                    |       | —                           |       | (14,118 | ) |
| Maintenance capital expenditures                                                              |       | (492                             | )          | (767 | ) |
| Distributable cash flow                                                                       |       | $                                | 11,809     |   | $ | 19,259 |   |

 

***Consolidated Results***

 

Ourtotal sales for the first quarter of 2008 increased by $1,147.8 million,or 73%, to $2,721.0 million compared to $1,573.2 million for the sameperiod in 2007.  The increase was driven primarily by higher refined petroleum productprices for the three months ended March 31, 2008 compared to the sameperiod in 2007 and our terminal acquisitions in Albany and Newburgh, New Yorkand Burlington, Vermont in May 2007 and in Glenwood Landing and Inwood,New York in November 2007.  Ouraggregate volume of product sold increased by approximately 158 million gallons, or 17%, to 1,064** **milliongallons.  The increase in volumeprimarily includes increases of approximately 176 million and 11** **million in gasoline and distillates,respectively, mostly due to our 2007 terminal acquisitions.  The increase in volume was offset by a28 million gallon decrease in residual oil, primarily due to conversionand fuel switching related to increased residual oil prices relative to theprices of natural gas and intensified competition in the marketplace.  Thenumber of actual heating degree days decreased 7% to 2,728 compared with 2,918for the quarters ended March 31, 2008 and 2007, respectively.  Our gross profit for the first quarterof 2008 was $35.6** **million, a decrease of $6.6** **million, or 16%, compared to $42.2** **millionfor the same period in 2007.  Thedecrease was primarily due to lower net product margins in distillates andresidual oil and an increase in depreciation on our terminals, which is includedin cost of sales, as a result of our 2007 terminal acquisitions.  The decrease was partially offset by a highernet product margin in our Wholesale segment for gasoline.

 

*Wholesale Segment*

* *

Distillates.  Wholesale distillate sales for the threemonths ended March 31, 2008 were $1,603.4 million compared to$1,048.8 million for the three months ended March 31, 2007.  The increase of $554.6 million, or 53%,was due to increases in refined petroleum product prices and volume sold forthe three months ended March 31, 2008 compared to the same period in2007.  We attribute the increase involume sold primarily to our 2007 terminal acquisitions.  Although we experienced increasesin distillate sales and volume sold, these results were negatively impacted bythe higher price for heating oil compared to the price of natural gas, warmertemperatures, meaningful energy conservation and unfavorable forwardpricing.  Primarily due to these samefactors, our net product margin contribution from distillate sales decreased by$3.6 million, or 14%, to$23.1 million for the threemonths ended March 31, 2008 compared to the same period in 2007.

 

Gasoline.  Wholesale gasoline sales for the three monthsended March 31, 2008 were $975.1 million compared to$381.3 million for the same period in 2007.  The increaseof $593.8 million, or 156%,was due primarily to our 2007 terminal acquisitions, an increase ingasoline volume sold and higher prices.  Our net product margin from gasolinesales increased by $6.9 million to $8.5 million for the three monthsended March 31, 2008 compared to the same period in 2007, primarilyattributable to our 2007 terminal acquisitions. Although we experienced increases in gasoline sales, volume sold and netproduct margin, these results were negatively impacted by: i) shifts tomore fuel-efficient, hybrid or 

 

28

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alternativefuel vehicles and changes in driving habits; ii) the opportunisticconversion of certain gasoline markets to ethanol which put us in a temporarilydisadvantaged competitive position while our terminal infrastructure was beingconverted; and iii)  the temporary logistical supply issues related torail capacity which adversely affected the performance of our Burlington, Vermontfacility.  We have since successfullycompleted the conversion to ethanol at our facilities which are now fullyoperational and full rail service to our Burlington, Vermont facility hasresumed.

 

ResidualOil.  Wholesale residualoil sales for the three months ended March 31, 2008 were$18.3 million compared to $10.6 million for the three months ended March 31,2007.  The increase of $7.7 million,or 73%, was primarily due to an increase in refined petroleum product prices.  Our netproduct margin contribution from residual oil sales decreased by$6.0 million, or 61%, to $3.9 million for the three months ended March 31,2008 compared to the same period in 2007 due to conversion and fuel switchingrelated to increased residual oil prices relative to the prices of natural gasand intensified competition in the marketplace.

 

*Commercial Segment*

* *

Inour Commercial segment, residual oil accounted for approximately 71% and 80% oftotal commercial volume sold for the three months ended March 31, 2008 and2007, respectively.  Distillates,gasoline and natural gas accounted for the remainder of the total volume sold.

 

Commercialresidual oil sales for the quarter ended March 31, 2008 decreased by 24%compared to the same period in 2007 due to a 49% decrease in volume sold.  We attribute the decrease in volume sold tothe competitive pricing from natural gas and reductions in production bycertain industry participants in our territory. Specifically, for the three months ended March 31, 2008 compared tothe same period in 2007, prices for heating oil and residual oil increased 62%and 59%, respectively, while the price for natural gas increased 30%.

 

*Selling, General and Administrative Expenses*

 

SG&Aexpenses decreased by $2.3 million, or 17%, to $11.1 million for thethree months ended March 31, 2008 compared to $13.4 million for thesame period in 2007.  The decrease wasprimarily due to decreases of $2.5 million in accrued bonuses,$0.2 million in professional fees, $0.2 million in legal fees as aresult of reimbursements from insurance carriers for previously expensed legalfees and $0.3 million in other SG&A expenses, offset by increases of$0.7 million in salaries, partly due to additional employees to supportour terminal acquisitions, and $0.2 million in compensation cost on ourlong-term incentive plan.

 

*Operating Expenses*

* *

Operatingexpenses increased by $3.1 million, or 53%, to $9.0 million for thethree months ended March 31, 2008 compared to $5.9 million for thesame period in 2007.  The increase wasprimarily due to $1.4 million in costs associated with operating ourAlbany and Newburgh, New York and Burlington, Vermont terminals acquired in May 2007,$1.2 million in costs associated with operating our Glenwood Landing andInwood, New York terminals acquired in November 2007, $0.3 million incosts associated with our leased terminal in Providence, Rhode Island and$0.2 million in other operating expenses.

 

***Interest Expense***

*** ***

Interestexpense for the three months ended March 31, 2008 increased by$2.7 million, or 82%, to $6.0 million compared to $3.3 millionfor the same period in 2007.  Weattribute the increase primarily to increased refined petroleum product priceswhich resulted in higher average balances on our working capital creditfacility that were required to carry higher average balances on inventories andaccounts receivable.  In addition, we hadincreased borrowings on our working capital and acquisition facilities to fundour 2007 terminal acquisitions.

 

***Gain on Sale of Investment***

*** ***

***In March 2007, we sold our***investment in NYMEX Holdings, Inc. along with our NYMEX seats forapproximately $15.3 million and realized a gain of approximately$14.1 million for the three months ended March 31, 2007.

*** ***

***29***

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*** ***

**Liquidity and CapitalResources**

** **

***Liquidity***

** **

Ourprimary liquidity needs are to fund our working capital requirements and ourcapital expenditures.  Cash generatedfrom operations and our working capital revolving credit facility provide ourprimary sources of liquidity.  Workingcapital increased by $2.9 million to $173.9 million at March 31,2008 compared to $171.0 million at December 31, 2007.

 

On February 14, 2008, we paida cash distribution of approximately $6.5 million for the fourth quarterof 2007 to our common and subordinated unitholders of record as of the close ofbusiness February 5, 2008.  On April 23,2008, the board of directors of the General Partner declared a quarterly cashdistribution of $0.4875 per unit for the period from January 1, 2008through March 31, 2008 ($1.95 per unit on an annualized basis) to ourcommon and subordinated unitholders of record as of the close of business May 6, 2008.  We expect to pay the cash distribution of approximately$6.5 million on May 15, 2008.

 

***CapitalExpenditures***

*** ***

Ourterminalling operations require investments to expand, upgrade and enhanceexisting operations and to meet environmental and operations regulations.  Our capital requirements primarily consist ofmaintenance capital expenditures and expansion capital 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 $0.5 million and $0.8 million in maintenance capital expendituresfor the three months ended March 31, 2008 and 2007, respectively, whichare included in capital expenditures in the accompanying consolidatedstatements of cash flows.  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.

 

Expansioncapital 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 generally fund our expansion capitalexpenditures through our acquisition and working capital revolving creditfacilities or by issuing additional equity. We had approximately $2.7 million and $74,000 in expansion capital expendituresfor the three months ended March 31, 2008 and 2007, respectively, whichare included in capital expenditures in the accompanying consolidatedstatements of cash flows, to increase our operating capacity andcapabilities.  Specifically, for thethree months ended March 31, 2008, expansion capital expenditures included$1.4 million in expenditures related to construction in process on ournewly leased terminal in Providence, Rhode Island and $1.3 million inother expansion capital expenditures which, in part, included some investmentswe made in our information technology infrastructure to maintain uniformityamong all our locations as we acquired assets. For example, we are implementing an enterprise-wide system that providesimproved access to information about inventory, pricing and sales by location.

 

Weanticipate that maintenance capital expenditures will be funded with cashgenerated by operations.  We believe thatwe will have sufficient liquid assets, cash flow from operations, borrowing capacityunder our credit agreement and the ability to issue additional common unitsand/or debt securities under our shelf registration statement to meet ourfinancial commitments, debt service obligations, contingencies and anticipatedcapital expenditures.  However, we aresubject to business and operational risks that could adversely affect our cashflow.  A material decrease in our cashflows would likely produce an adverse effect on our borrowing capacity.

 

***CashFlow***

*** ***

Thefollowing table summarizes cash flow activity (in thousands):

 
| ** **                                          | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                          | ** ** | **March 31,**               | ** ** |
| ** **                                          | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                                |       |                             |       |   |   |
| Net cash provided by operating activities           |       | $                                | 97,817     |   | $ | 140,728 |   |
| Net cash (used in) provided by investing activities |       | $                                | (3,186     | ) | $ | 9,715 |   |
| Net cash used in financing activities               |       | $                                | (93,217    | ) | $ | (152,317 | ) |

 

30

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Cashflow from operating activities generally reflects the purchasing patterns ofinventory, the timing of collections on our accounts receivable, the seasonalityof our business, fluctuations in refined petroleum product prices, our workingcapital requirements related to acquisitions and general market conditions.

 

Netcash provided by operating activities decreased by $42.9 million for thethree months ended March 31, 2008 compared to the same period in 2007 andwas primarily reflected by the following (i) the $24.3 milliondecrease in net income offset by $14.1 million representing the gain onthe sale of our NYMEX Holdings, Inc. shares and related NYMEX seats in thefirst quarter of 2007; (ii) changes of $104.7 million in accountsreceivable and $9.8 million in inventories, offset by changes of $29.3** **million in accounts payable and $5.3 million inaccrued expenses and other current liabilities, primarily the result of our2007 terminal acquisitions and increases in refined petroleum product pricesyear over year, and $14.0** **millionin prepaid expenses and (iii) a $100.6 million change in the fairvalue of our forward fixed price contracts and other derivatives.  For the three months ended March 31,2008, contracts supporting our forward fixed price hedge program requiredmargin payments of approximately $34.5 million to the Mercantile Exchange due to market directionwhile for the three months ended March 31, 2007, similar hedgingactivity provided funds of approximately $66.2 million.

 

Netcash used in investing activities increased by $12.9 million for the threemonths ended March 31, 2008 compared to the same period in 2007 andincluded $3.2 million in total capital expenditures comprised of$0.5 million in maintenance capital expenditures and $2.7 million inexpansion capital expenditures ($1.4 million related to construction inprocess on our leased terminal in Providence, Rhode Island and $1.3 millionin other expansion capital expenditures). Comparatively, for the three months ended March 31, 2007, we hadproceeds of $15.3 million from the sale of our investment NYMEX Holdings, Inc.and related seats, offset by a $4.7 million pre-acquisition deposit and $0.8 millionin total capital expenditures.

 

Netcash used in financing activities decreased by $59.1 million for the threemonths ended March 31, 2008 compared to the same period in 2007 andincluded net payments on our credit facilities of $86.6 million and$6.5 million in cash distributions to our common and subordinatedunitholders.  Comparatively, for thethree months ended March 31, 2007, we paid $147.0 million on ourcredit facilities and $5.2 million in cash distributions.

 

***Credit Agreement***

 

We,our general partner, our operating company and our operating subsidiaries havea four-year senior secured credit agreement with total available commitments of$750.0 million.  We repay amountsoutstanding and reborrow funds based on our working capital requirements and,therefore, classify as a current liability the portion of the revolving line ofcredit we expect to pay down during the course of the year.  The long-term portion of the revolving lineof credit is the amount we expect to be outstanding during the entireyear.  The credit agreement will matureon April 22, 2011.  There are threefacilities under our credit agreement:

 

·     aworking capital revolving credit facility to be used for working capitalpurposes and letters of credit in the principal amount equal to the lesser ofour borrowing base and $650.0 million, of which two $50.0 millionseasonal overline facilities are available each year only during the periodbetween September 1 and June 30;

 

·     an$85.0 million acquisition facility to be used for funding acquisitionssimilar to our business line that have a purchase price of $25.0 millionor less or $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 our unitholders.

 

Inaddition, provided no Event of Default (as defined in the credit agreement) thenexists, we may request to increase:  (1) theacquisition facility by up to another $50.0 million, for a totalacquisition facility of up to $135.0 million; and (2) the workingcapital revolving credit facility by up to another $100.0 million, for a total working capitalrevolving credit facility of up to $750.0 million.  Any such request for an increase by us mustbe in a minimum amount of $5.0 million, and no more than three suchrequests may be made for each facility.

 

31

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Borrowingsunder our working capital revolving credit, acquisition and revolving creditfacilities bear interest at our option at (1) the Eurodollar rate, plus 1%, 11⁄2%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. The average interest rate for the three months ended March 31, 2008was approximately 4.6%.  We incur aletter of credit fee of 1% per annum for each letter of credit issued.  In addition, we incur a commitment fee on theunused portion of the three facilities under the credit agreement (includingthe unused portion of either of the seasonal overline facilities exercised byus) at a rate of 25 basis points per annum, a facility fee of 10 basispoints per annum on any unexercised seasonal overline facility during theperiod between September 1 and June 30 and a seasonal overline fee of$30,000 each time we elect to exercise either of the seasonal overlinefacilities.

 

Asof March 31, 2008, we had total borrowings outstanding under our creditagreement of $408.4 million and outstanding letters of credit of$81.9 million.  The total remainingavailability for borrowings and letters of credit at March 31, 2008 was$259.7 million.

 

Thecredit agreement imposes covenants that require us to maintain certain minimumworking capital amounts, capital expenditure limits, a minimum EBITDA ratio, aminimum interest coverage ratio and a maximum leverage ratio.  We were in compliance with all covenants at March 31,2008.

 

Thecredit agreement provides that in each calendar year the outstanding amountunder the working capital revolving credit facility must be equal to or lessthan $130.0 million for a period of ten consecutive calendar days.  It is anticipated that the seasonal decreasein working capital as we exit our heating season will contribute to a decreasein borrowings outstanding under our credit agreement.

 

Thecredit agreement limits distributions to our unitholders to available cash andpermits borrowings to fund such distributions only under the $15.0 millionrevolving credit facility.  The revolvingcredit facility is subject to an annual “clean-down” period, requiring us toreduce the amount outstanding under the revolving credit facility to $0 for30 consecutive calendar days in each calendar year.

 

Ourobligations under the Credit Agreement are secured by substantially all of ourassets and the assets of our operating company and operating subsidiaries.

 

***Off-Balance Sheet Arrangements***

 

Wehave no off-balance sheet arrangements.

 

**CriticalAccounting Policies and Estimates**

** **

Management’sDiscussion and Analysis of Financial Condition and Results of Operationsdiscusses our consolidated financial statements, which have been prepared inaccordance with GAAP.  The preparation ofthese consolidated 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 theconsolidated financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results may differ from these estimates under differentassumptions or conditions.

 

Theseestimates are based on our knowledge and understanding of current conditionsand actions that we may take in the future. Changes in these estimates will occur as a result of the passage of timeand the occurrence of future events.  Wehave identified 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.

 

Thesignificant accounting policies and estimates that we have adopted and followedin the preparation of our consolidated financial statements are detailed inNote 2 of Notes to Financial Statements, “Summary of SignificantAccounting Policies” included in our Annual Report on Form 10-K for theyear ended December 31, 2007.  Except as discussed in Notes 14 and 15 of Notes to Consolidated FinancialStatements related to the adoption of SFAS No. 157, there have beenno subsequent changes in these policies and estimates that had a significantimpact on our financial condition and results of operations for the periodscovered in this report.

 

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**RecentAccounting Pronouncements**

 

Adescription and related impact expected from the adoption of certain newaccounting pronouncements is provided in Note 15 of Notes to ConsolidatedFinancial Statements.

 

**Item 3.****       ****Quantitative and QualitativeDisclosures about Market Risk**

 

Marketrisk is the risk of loss arising from adverse changes in market rates andprices.  The principal market risks towhich we are exposed are interest rate risk and commodity risk.  We utilize one interest rate collar to manageexposure to interest rate risk and various derivative instruments to manageexposure to commodity risk.

 

***Interest Rate Risk***

 

Weutilize variable rate debt and are exposed to market risk due to the floatinginterest rates on our credit facility and term loan.  Therefore, from time to time, we utilizeinterest rate swaps and collars to hedge interest obligations on specific andanticipated debt issuances.

 

Borrowingsunder our working capital revolving credit, acquisition credit and revolvingcredit facilities bear interest at our option at (1) the Eurodollar rate,plus 1%, 11⁄2% 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.  The average interest rate for the threemonths ended March 31, 2008 was approximately 4.6%.  As of March 31, 2008, we had totalborrowings outstanding under the credit agreement of $408.4 million andoutstanding letters of credit of $81.9 million.  The impact of a 1% increase in the interestrate on this amount of debt would have resulted in an increase in interestexpense, and a corresponding decrease in our results of operations, ofapproximately $4.1 million annually, assuming, however, that ourindebtedness remained constant throughout the year.

 

We executed a zero premium interestrate collar with a major financial institution. The collar, which became effective on May 14, 2007, is used tohedge the variability in interest payments due to changes in the three-monthLIBOR rate with respect to $100.0 million of long-term three-month LIBOR-basedborrowings.  Under the contract, wecapped our exposure at a maximum three-month LIBOR rate of 5.75%.  In addition, we established a minimum floorthree-month LIBOR rate of 3.75%. Whenever the three-month LIBOR rate is greater than the cap, we receivefrom the financial institution the difference between the cap and the currentthree-month LIBOR rate on the $100.0 million of long-term three-month LIBOR-basedborrowings.  Conversely, whenever thethree-month LIBOR rate is lower than the floor, we remit to the financialinstitution the difference between the floor and the current three-month LIBORrate on the $100.0 millionof long-term three-month LIBOR-based borrowings.  As of March 31, 2008, the three-monthLIBOR rate of 3.1% was lower than the floor rate.  As a result, we will remit to the financialinstitution the difference between the floor rate and the current rate whichamounted to approximately $89,000.  The collar, which expires on May 14, 2011, isdesignated as a cash flow hedge and accounted for under the provisions of SFAS No. 133,as amended (see Note 4of Notes to Consolidated Financial Statements).

 

***Commodity Risk***

 

Wehedge our exposure to price fluctuations with respect to refined petroleumproducts in storage and expected purchases and sales of these commodities.  The derivative instruments utilized consistprimarily of futures contracts traded on the NYMEX and over-the-countertransactions, including swap agreements entered into with established financialinstitutions 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 our profit.  While our policies are designed to minimize marketrisk, some degree of exposure to unforeseen fluctuations in market conditionsremains.  Except for the controlledtrading program discussed below, we do not acquire and hold futures contractsor other derivative products for the purpose of speculating on price changesthat might expose us to indeterminable losses.

 

Whilewe seek to maintain a position that is substantially balanced within ourproduct purchase activities, we may experience net unbalanced positions forshort periods of time as a result of variances in daily sales andtransportation and delivery schedules as well as logistical issues associatedwith inclement weather conditions.  Inconnection with managing these positions and maintaining a constant presence inthe marketplace, both necessary for our business, we engage in a controlledtrading program for up to an aggregate of 250,000 barrels of refined petroleumproducts.

 

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Weenter into futures contracts to minimize or hedge the impact of marketfluctuations on our purchase and forward fixed price sales of refined petroleumproducts.  Any hedge ineffectiveness isreflected in our results of operations. We utilize the NYMEX, which is a regulated exchange for energy productsthat 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.

 

AtMarch 31, 2008, the fair value of all of our commodity risk derivativeinstruments and the change in fair value that would be expected from a 10%price increase are shown in the table below (in thousands):

 

Gain (loss):

 
| ** **                    | ** ** | **Fair Value at  March 31, 2008** | ** ** | **Effect of 10%****Price Increase** | ** ** |
|-------------------------------|------------|-------------------------------------------------------|------------|----------------------------------------------------|------------|
|                          |       |                                                  |       |                                               |       |
| NYMEX contracts               |       | $                                                     | 4,530      |                                               | $          | (6,880 | ) |
| Swaps, options and other, net |       | 675                                                   |       | (3,885                                             | )          |
|                          |       | $                                                     | 5,205      |                                               | $          | (10,765 | ) |

 

Thefair values of the futures contracts are based on quoted market prices obtainedfrom the NYMEX.  The fair value of theswaps and option contracts are estimated based on quoted prices from varioussources such as independent reporting services, industry publications andbrokers.  These quotes are compared tothe contract price of the swap, which approximates the gain or loss that wouldhave been realized if the contracts had been closed out at March 31,2008.  For positions where independentquotations are not available, an estimate is provided, or the prevailing marketprice at which 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% increase inprice regardless of term or historical relationships between the contractualprice of the 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 margin requirementto maintain a cash deposit with our broker based on the prior day’s marketresults on open futures contracts.  Thebalance of this deposit will fluctuate based on our open market positions andthe commodity exchange’s requirements. The required brokerage margin balance was $16.1 million at March 31,2008.

 

Weare exposed to credit loss in the event of nonperformance by counterparties offutures contracts, forward contracts and swap agreements, but do not anticipatenonperformance by any of these counterparties. Futures contracts, the primary derivative instrument utilized, aretraded on regulated 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.  We utilizeprimarily one clearing broker, a major financial institution, for all NYMEXderivative transactions and the right of offset exists.  Accordingly, the fair value of all derivativeinstruments is displayed on a net basis.

 

**Item 4.****       ****Controls and Procedures**

 

In designing andevaluating controls and procedures, management recognizes that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement is required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

 

***DisclosureControls and Procedures***

 

Wemaintain disclosure controls and procedures that are designed to ensure thatthe information required to be disclosed by us in the reports we file or submitunder the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded,processed, summarized and reported within the time periods specified in SEC rules andforms.  Under the supervision and withthe participation of our principal executive officer and principal financialofficer, management evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) of theExchange Act).  Based on that evaluation,our principal executive officer and principal financial officer concluded thatour disclosure controls and procedures were effective as of the fiscal quarterended March 31, 2008.

 

34

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***Internal Control over Financial Reporting***

 

There has not been any change in our internal control over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) of theExchange Act) that occurred during the fiscal quarter ended March 31, 2008that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

35

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**PART II.  OTHER INFORMATION**

 

**Item 1.****       ****Legal Proceedings**

 

Althoughwe may, from time to time, be involved in litigation and claims arising out ofour operations in the normal course of business, we do not believe that we area party to any litigation that will have a material adverse impact on ourfinancial condition or results of operations. Except as described in our Annual Report on Form 10-K for the yearended December 31, 2007, 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.

 

**Item 1A.****    ****Risk Factors**

 

Therehave been no material changes to the Risk Factors disclosed in the Partnership’sAnnual Report on Form 10-K for the year ended December 31, 2007.

 

**Item 6.****       ****Exhibits**

 
| 3.1        |   | — |   | Second Amended and  Restated Agreement of Limited Partnership of Global Partners LP dated as of  May 9, 2007 (incorporated herein by reference to Exhibit 3.1 to the  Current Report on Form 8-K filed on May 10, 2007).                             |
|------------|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |   |   |                                                                                                                                                                                                                                                                     |
| 3.2        |   | — |   | Amendment No. 1 to  the Second Amended and Restated Agreement of Limited Partnership of Global  Partners LP dated April 14, 2008 (incorporated herein by reference to  Exhibit 3.1 to the Current Report on Form 8-K filed on  April 17, 2008). |
|       |   |   |   |                                                                                                                                                                                                                                                                     |
| 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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**†****      **Not deemed “filed” for purposes of Section 18of the Securities Exchange Act of 1934 or otherwise subject to the liability ofthat section.

 

36

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**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
| ** **              | ** ** | **GLOBAL PARTNERS LP** |
|-------------------------|------------|------------------------|
| ** **              | ** ** | ** **             |
|                    |       | By:                    | Global GP LLC, |
|                    |       |                   | its general partner |
|                    |       |                   |   |
|                    |       |                   |   |
| Dated: May 9, 2008 |       |                   | By: | /s/ Eric Slifka |
|                    |       |                   |   | Eric Slifka |
|                    |       |                   |   | President and Chief Executive Officer |
|                    |       |                   |   | (Principal Executive Officer) |
|                    |       |                   |   |   |
|                    |       |                   |   |   |
| Dated: May 9, 2008 |       |                   | By: | /s/ Thomas J. Hollister |
|                    |       |                   |   | Thomas J. Hollister |
|                    |       |                   |   | Chief Operating Officer and Chief Financial  Officer |
|                    |       |                   |   | (Principal Financial Officer) |

 

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**INDEX TO EXHIBITS**

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                                                                                                          |
|--------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **         | ** ** | ** **                                                                                                                                                                                                                                                               |
| 3.1                | —     | Second Amended and  Restated Agreement of Limited Partnership of Global Partners LP dated as of  May 9, 2007 (incorporated herein by reference to Exhibit 3.1 to the  Current Report on Form 8-K filed on May 10, 2007).                             |
|               |       |                                                                                                                                                                                                                                                                     |
| 3.2                | —     | Amendment No. 1 to  the Second Amended and Restated Agreement of Limited Partnership of Global  Partners LP dated April 14, 2008 (incorporated herein by reference to  Exhibit 3.1 to the Current Report on Form 8-K filed on  April 17, 2008). |
|               |       |                                                                                                                                                                                                                                                                     |
| 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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**†****      **Not deemed “filed” for purposes of Section 18of the Securities Exchange Act of 1934 or otherwise subject to the liability ofthat section.

 

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