**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

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**FORM 10-Q/A**

**(Amendment No. 1)**

 

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**(Mark One)**

 

| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                        | ** ** |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                    | ** ** |
| ** ** | ** ** | **For the quarterly period ended  June 30, 2010**                                                                                                                                                        | ** ** |
| ** ** | ** ** | ** **                                                                                                                                                                                                    | ** ** |
| ** ** | ** ** | **OR**                                                                                                                                                                                                        | ** ** |
| ** ** | ** ** | ** **                                                                                                                                                                                                    | ** ** |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                       | ** ** |
| ** ** | ** ** | ** **                                                                                                                                                                                                    | ** ** |
| ** ** | ** ** | **For the transition period  from              to              ** | ** ** |

 

**Commission file number****001-32593**

 

**GlobalPartners LP**

(Exact name of registrant as specified in itscharter)

 

| **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 mark whether the registrant (1) has filed all  reports required to be filed by Section 13 or 15(d) of the  Securities Exchange Act of 1934 during the preceding 12 months (or for such  shorter period that the registrant was required to file such reports),                                            |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| and  (2) has been subject to such filing requirements for the past 90 days.                                                                                                                                                                                                                                                           |   | Yes ý No o |
|                                                                                                                                                                                                                                                                                                                                       |   |   |
| Indicate by check mark whether the registrant has submitted  electronically and posted on its corporate Web site, if any, every  Interactive Data File required to be submitted and posted pursuant to  Rule 405 of Regulation S-T during the preceding 12 months (or                                                       |
| for  such shorter period that the registrant was required to submit and post such  files.                                                                                                                                                                                                                                                  |   | Yes o No o |
|                                                                                                                                                                                                                                                                                                                                       |   |   |
| Indicate by check mark whether the registrant is a large accelerated  filer, an accelerated filer, a non-accelerated filer, or a smaller reporting  company. See the definitions of “large accelerated filer,” “accelerated  filer” and “smaller reporting company” in Rule 12b-2 of the Exchange  Act. |

 
| 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 (as  defined in Rule 12b-2 of the Exchange Act). |   | Yes o No ý |
|------------------------------------------------------------------------------------------------------------------------|--------|-----------------|

 

Theissuer had 11,338,139 common units and 5,642,424 subordinated units outstandingas of August 3, 2010.

 

 

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**TABLE OF CONTENTS**

 
| **EXPLANATORY NOTE**                                                                                     |       |
|---------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                          |       |
| **PART I.  FINANCIAL INFORMATION**                                                                       | ** ** |
| ** **                                                                                                    | ** ** |
| **Item 1. Financial Statements**                                                                              | ** ** |
| ** **                                                                                                    | ** ** |
| Consolidated  Balance Sheets as of June 30, 2010 (restated) and December 31, 2009                   | ** ** |
|                                                                                                          |       |
| Consolidated  Statements of Income for the three and six months ended June 30, 2010  (restated) and 2009 |       |
|                                                                                                          |       |
| Consolidated  Statements of Cash Flows for the six months ended June 30, 2010  (restated) and 2009       |       |
|                                                                                                          |       |
| Consolidated  Statements of Partners’ Equity for the six months ended June 30, 2010  (restated)     |       |
|                                                                                                          |       |
| 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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**EXPLANATORY NOTE**

 

ThisAmendment No. 1 on Form 10-Q/A amends the Quarterly Report on Form 10-Qof Global Partners LP (the “Partnership”) for the fiscal quarter endedJune 30, 2010, as filed with the Securities and Exchange Commission onAugust 6, 2010, and restates its unaudited financial statements as of andfor the three and six months ended June 30, 2010, the notes thereto andrelated disclosures, to reflect the error described below.  As a result, the unaudited interim financialstatements included in the originally filed Form 10-Q should not be reliedupon.

 

Subsequentto the quarter ended June 30, 2010, following a change in the billing protocolfor a certain type of sales transaction for a specific customer, managementdiscovered that fuel tax credits associated with such sales transactions hadnot been properly recorded.  This codingerror resulted in the Partnership’s sales and net income being understated andaccrued tax liability being overstated as of and for the three and six monthsended June 30, 2010.

 

Theunaudited financial statements and the notes thereto included herein have beenrestated to reflect this adjustment, and disclosure of the adjustment has beenmade to the discussion under “Management’s Discussion and Analysis of Financial Condition andResults of Operations.”

 

Forthe convenience of the reader, Amendment No. 1 restates the 10-Q in its entirety.  Except as stated above, no other informationhas been changed from the originally filed Form 10-Q.  The Partnership has included new certificationsof its officers pursuant to Sections 302 and 906 of the Sarbanes Oxley Act withthis Form 10-Q/A.

 

1

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**Item 1.    Financial Statements**

 

**GLOBAL PARTNERS LP**

**CONSOLIDATED BALANCE SHEETS**

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

**(Unaudited)**

** **
| ** **                                                                                                                                                                     | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                     | ** ** | **2010**          | ** ** | **2009**              | ** ** |
| ** **                                                                                                                                                                     | ** ** | **(Restated)**    | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                                                     | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                                                |       |              |       |                  |       |
| Cash and cash equivalents                                                                                                                                                      |       | $                 | 4,271      |                  | $          | 662 |   |
| Accounts receivable, net                                                                                                                                                       |       | 252,520           |       | 335,912               |       |
| Accounts receivable—affiliates                                                                                                                                            |       | 3,239             |       | 1,565                 |       |
| Inventories                                                                                                                                                                    |       | 443,296           |       | 465,923               |       |
| Brokerage margin deposits                                                                                                                                                      |       | 19,826            |       | 18,059                |       |
| Fair value of forward fixed price contracts                                                                                                                                    |       | 8,195             |       | 3,089                 |       |
| Prepaid expenses and other current assets                                                                                                                                      |       | 49,689            |       | 37,648                |       |
| Total current assets                                                                                                                                                           |       | 781,036           |       | 862,858               |       |
|                                                                                                                                                                           |       |              |       |                  |       |
| Property and equipment, net                                                                                                                                                    |       | 197,852           |       | 159,292               |       |
| Intangible assets, net                                                                                                                                                         |       | 34,766            |       | 28,557                |       |
| Other assets                                                                                                                                                                   |       | 15,238            |       | 1,996                 |       |
| Total assets                                                                                                                                                                   |       | $                 | 1,028,892  |                  | $          | 1,052,703 |   |
| ** **                                                                                                                                                                     | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Liabilities and partners’  equity**                                                                                                                                     | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current liabilities:                                                                                                                                                           |       |              |       |                  |       |
| Accounts payable                                                                                                                                                               |       | $                 | 202,603    |                  | $          | 243,449 |   |
| Working capital revolving credit facility—current  portion                                                                                                                |       | 101,328           |       | 221,711               |       |
| Environmental liabilities—current portion                                                                                                                                 |       | 3,326             |       | 3,296                 |       |
| Accrued expenses and other current liabilities                                                                                                                                 |       | 81,858            |       | 77,604                |       |
| Income taxes payable                                                                                                                                                           |       | —            |       | 461                   |       |
| Obligations on forward fixed price contracts and  other derivatives                                                                                                            |       | 9,562             |       | 21,114                |       |
| Total current liabilities                                                                                                                                                      |       | 398,677           |       | 567,635               |       |
|                                                                                                                                                                           |       |              |       |                  |       |
| Working capital revolving credit facility—less  current portion                                                                                                           |       | 269,272           |       | 240,889               |       |
| Acquisition facility                                                                                                                                                           |       | 97,800            |       | 71,200                |       |
| Environmental liabilities—less current portion                                                                                                                            |       | 3,607             |       | 2,254                 |       |
| Accrued pension benefit cost                                                                                                                                                   |       | 2,461             |       | 2,751                 |       |
| Deferred compensation                                                                                                                                                          |       | 2,051             |       | 1,840                 |       |
| Other long-term liabilities                                                                                                                                                    |       | 15,546            |       | 8,714                 |       |
| Total liabilities                                                                                                                                                              |       | 789,414           |       | 895,283               |       |
| ** **                                                                                                                                                                     | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Partners’ equity**                                                                                                                                                      | ** ** | ** **        | ** ** | ** **            | ** ** |
| Common unitholders (11,338,139 units issued and  11,291,312 outstanding at June 30, 2010 and 7,428,139 units issued and  7,380,996 outstanding at December 31, 2009) |       | 252,141           |       | 165,129               |       |
| Subordinated unitholders (5,642,424 units issued  and outstanding at June 30, 2010 and December 31, 2009)                                                            |       | 1,895             |       | (713                  | )          |
| General partner interest (230,303 equivalent units  outstanding at June 30, 2010 and December 31, 2009)                                                              |       | 78                |       | (29                   | )          |
| Accumulated other comprehensive loss                                                                                                                                           |       | (14,636           | )          | (6,967                | )          |
| Total partners’ equity                                                                                                                                                    |       | 239,478           |       | 157,420               |       |
| Total liabilities and partners’ equity                                                                                                                                    |       | $                 | 1,028,892  |                  | $          | 1,052,703 |   |

 

The accompanying notes arean integral part of these consolidated financial statements.

 

2

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**GLOBAL PARTNERS LP**

**CONSOLIDATED STATEMENTS OF INCOME**

**(Inthousands, except per unit data)**

**(Unaudited)**

 
|                                                        | ** **                                                                              | **Three  Months Ended  June 30,** | ** ** | **Six  Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------|-----------------------------------------------------------------------------------------|----------------------------------------|------------|--------------------------------------|------------|
|                                                        | ** **                                                                              | **2010**                               | ** ** | **2009**                             | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                                        | ** **                                                                              | **(Restated)**                         | ** ** | ** **                           | ** ** | **(Restated)** | ** ** |   | ** ** |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Sales                                                       |                                                                                    | $                                      | 1,534,701  |                                 | $          | 1,201,149 |   | $ | 3,499,446 |   | $ | 2,834,104 |   |
| Cost of sales                                               |                                                                                    | 1,502,740                              |       | 1,173,360                            |       | 3,419,717 |   | 2,755,601 |   |
| Gross profit                                                |                                                                                    | 31,961                                 |       | 27,789                               |       | 79,729 |   | 78,503 |   |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Costs and operating expenses:                               |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Selling, general and administrative expenses                |                                                                                    | 13,891                                 |       | 13,299                               |       | 30,469 |   | 31,374 |   |
| Operating expenses                                          |                                                                                    | 9,803                                  |       | 9,137                                |       | 18,462 |   | 17,612 |   |
| Amortization expenses                                       |                                                                                    | 734                                    |       | 803                                  |       | 1,425 |   | 1,603 |   |
| Total costs and operating expenses                          |                                                                                    | 24,428                                 |       | 23,239                               |       | 50,356 |   | 50,589 |   |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Operating income                                            |                                                                                    | 7,533                                  |       | 4,550                                |       | 29,373 |   | 27,914 |   |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Interest expense                                            |                                                                                    | (4,374                                 | )          | (3,422                               | )          | (8,438 | ) | (7,198 | ) |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Income before income tax expense                            |                                                                                    | 3,159                                  |       | 1,128                                |       | 20,935 |   | 20,716 |   |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Income tax expense                                          |                                                                                    | —                                 |       | (150                                 | )          | (387 | ) | (875 | ) |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Net income                                                  |                                                                                    | 3,159                                  |       | 978                                  |       | 20,548 |   | 19,841 |   |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Less:                                                       | General  partner’s interest in net income, including incentive distribution rights |                                   | (107       | )                                    | (67        | ) | (446 | ) | (443 | ) |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Limited partners’ interest in net income               |                                                                                    | $                                      | 3,052      |                                 | $          | 911 |   | $ | 20,102 |   | $ | 19,398 |   |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Basic net income per limited partner unit                   |                                                                                    | $                                      | 0.18       |                                 | $          | 0.07 |   | $ | 1.32 |   | $ | 1.48 |   |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Diluted net income per limited partner unit                 |                                                                                    | $                                      | 0.18       |                                 | $          | 0.07 |   | $ | 1.30 |   | $ | 1.46 |   |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Basic weighted average limited partner units  outstanding   |                                                                                    | 16,917                                 |       | 13,059                               |       | 15,260 |   | 13,065 |   |
|                                                        |                                                                                    |                                   |       |                                 |       |   |   |   |   |
| Diluted weighted average limited partner units  outstanding |                                                                                    | 17,155                                 |       | 13,356                               |       | 15,496 |   | 13,273 |   |
|                                                             |                                                                                         |                                        |            |                                      |            |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

3

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**GLOBAL PARTNERS LP**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Inthousands)**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Six  Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                         | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| ** **                                                                         | ** ** | **(Restated)**                       | ** ** |   | ** ** |
| **Cash flows from operating  activities**                                          |       |                                 |       |   |   |
| Net income                                                                         |       | $                                    | 20,548     |   | $ | 19,841 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                                 |       |   |   |
| Depreciation and amortization                                                      |       | 7,566                                |       | 7,460 |   |
| Amortization of deferred financing fees                                            |       | 1,008                                |       | 578 |   |
| Gain on disposition of property and equipment and  other                           |       | (4                                   | )          | — |   |
| Bad debt expense                                                                   |       | 280                                  |       | 1,155 |   |
| Stock-based compensation expense                                                   |       | (49                                  | )          | 917 |   |
| Changes in operating assets and liabilities:                                       |       |                                 |       |   |   |
| Accounts receivable                                                                |       | 83,112                               |       | 57,642 |   |
| Accounts receivable — affiliate                                               |       | (1,674                               | )          | 1,447 |   |
| Inventories                                                                        |       | 22,627                               |       | (129,007 | ) |
| Broker margin deposits                                                             |       | (1,767                               | )          | (16,872 | ) |
| Prepaid expenses, all other current assets and  other assets                       |       | (25,653                              | )          | (3,520 | ) |
| Accounts payable                                                                   |       | (40,846                              | )          | (87,559 | ) |
| Income taxes payable                                                               |       | (1,179                               | )          | (578 | ) |
| Change in fair value of forward fixed price  contracts                             |       | (16,658                              | )          | 159,535 |   |
| Accrued expenses, all other current liabilities  and other long-term liabilities   |       | 3,253                                |       | 9,142 |   |
| Net cash provided by operating activities                                          |       | 50,564                               |       | 20,181 |   |
|                                                                               |       |                                 |       |   |   |
| **Cash flows from investing  activities**                                          |       |                                 |       |   |   |
| Terminal acquisition                                                               |       | (46,046                              | )          | — |   |
| Capital expenditures                                                               |       | (4,828                               | )          | (6,303 | ) |
| Proceeds from sale of property and equipment                                       |       | 43                                   |       | — |   |
| Net cash used in investing activities                                              |       | (50,831                              | )          | (6,303 | ) |
|                                                                               |       |                                 |       |   |   |
| **Cash flows from financing  activities**                                          |       |                                 |       |   |   |
| Proceeds from public offering, net                                                 |       | 84,584                               |       | — |   |
| (Payments on) proceeds from credit facilities, net                                 |       | (65,400                              | )          | 2,500 |   |
| Repurchase of common units                                                         |       | —                               |       | (1,293 | ) |
| Repurchased units withheld for tax obligations                                     |       | (404                                 | )          | — |   |
| Distributions to partners                                                          |       | (14,904                              | )          | (13,068 | ) |
| Net cash provided by (used in) in financing  activities                            |       | 3,876                                |       | (11,861 | ) |
|                                                                               |       |                                 |       |   |   |
| Increase in cash and cash equivalents                                              |       | 3,609                                |       | 2,017 |   |
| Cash and cash equivalents at beginning of period                                   |       | 662                                  |       | 945 |   |
| Cash and cash equivalents at end of period                                         |       | $                                    | 4,271      |   | $ | 2,962 |   |
|                                                                               |       |                                 |       |   |   |
| **Supplemental information**                                                       |       |                                 |       |   |   |
| Cash paid during the period for interest                                           |       | $                                    | 8,200      |   | $ | 7,289 |   |

 

The accompanying notes are an integral partof these consolidated financialstatements.

 

4

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**GLOBALPARTNERS LP**

**CONSOLIDATEDSTATEMENTS OF PARTNERS’ EQUITY**

**(Inthousands)**

**(Restated) (Unaudited)**

 
| ** **                                                               |       |            |       |             | ** ** | ** **   | ** ** | **Accumulated**   |       |               |       |
|--------------------------------------------------------------------------|------------|-----------------|------------|------------------|------------|--------------|------------|-------------------|------------|--------------------|------------|
| ** **                                                               |       |            |       |             | ** ** | **General**  | ** ** | **Other**         | ** ** | **Total**          | ** ** |
| ** **                                                               | ** ** | **Common**      | ** ** | **Subordinated** | ** ** | **Partner**  | ** ** | **Comprehensive** | ** ** | **Partners’** | ** ** |
| ** **                                                               | ** ** | **Unitholders** | ** ** | **Unitholders**  | ** ** | **Interest** | ** ** | **Loss**          | ** ** | **Equity**         | ** ** |
|                                                                     |       |            |       |             |       |         |       |              |       |               |       |
| **Balance at December 31,  2009**                                   |       | $               | 165,129    |             | $          | (713         | )          | $                 | (29        | )                  | $          | (6,967 | ) | $ | 157,420 |   |
| Proceeds from public offering, net                                       |       | 84,584          |       | —           |       | —       |       | —            |       | 84,584             |       |
| Stock-based compensation                                                 |       | (49             | )          | —           |       | —       |       | —            |       | (49                | )          |
| Distributions to partners                                                |       | (9,063          | )          | (5,502           | )          | (339         | )          | —            |       | (14,904            | )          |
| Phantom unit dividends                                                   |       | (48             | )          | —           |       | —       |       | —            |       | (48                | )          |
| Repurchased units withheld for tax obligations                           |       | (404            | )          | —           |       | —       |       | —            |       | (404               | )          |
| Comprehensive income:                                                    |       |            |       |             |       |         | ** ** | ** **        |       |               |       |
| Net income                                                               |       | 11,992          |       | 8,110            |       | 446          |       | —            |       | 20,548             |       |
| Other comprehensive income:                                              |       |            |       |             |       |         | ** ** | ** **        |       |               |       |
| Change in fair value of interest rate collars and  forward starting swap |       | —          |       | —           |       | —       |       | (7,111            | )          | (7,111             | )          |
| Change in pension liability                                              |       | —          |       | —           |       | —       |       | (558              | )          | (558               | )          |
| Total comprehensive income                                               |       | —          |       | —           |       | —       |       | —            |       | 12,879             |       |
| **Balance at June 30, 2010**                                        |       | $               | 252,141    |             | $          | 1,895        |       | $                 | 78         |               | $          | (14,636 | ) | $ | 239,478 |   |

 

The accompanying notes are an integral partof these consolidated financialstatements.

 

5

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 1.****                     ****Organization and Basis of Presentation**

 

**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.

 

The Partnership has fiveoperating subsidiaries:  Global Companies** **LLC, its subsidiary, Glen Hes Corp., Global MontelloGroup Corp., Chelsea Sandwich** **LLC andGlobal Energy Marketing** **LLC (“GlobalEnergy”) (the five operating subsidiaries, collectively, the “Companies”).  The Companies (other than Glen Hes Corp.) arewholly owned by Global Operating** **LLC, awholly owned subsidiary of the Partnership. Global Energy was formed to conduct the Partnership’s natural gasoperations.  It commenced operations in January 2010after obtaining the necessary licensure. In addition, GLP** **FinanceCorp. (“GLP** **Finance”) is a wholly ownedsubsidiary of the Partnership.  GLP** **Finance has no material assets or liabilities.  Its activities will be limited to co-issuingdebt securities and engaging in other activities incidental thereto.

 

OnMarch 19, 2010,the Partnership completed a public offering of 3,910,000 common units at aprice of $22.75 per common unit.  Netproceeds were approximately $84.6 million, after deducting approximately $4.4 million in underwriting fees and offering expenses.  The Partnership used the net proceeds toreduce indebtedness under its senior secured credit agreement.  See Note 16 for additional information related to the public offering.

 

ThePartnership’s 1.34% general partner interest (reduced from 1.73% following thePartnership’s public offering discussed above and in Note 16) is held byGlobal** **GP** **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 241,141 commonunits and 5,642,424 subordinated units, representing a combined 34.2% limitedpartner interest.

 

**Basis of Presentation**

 

*Interim Financial Statements*

 

The accompanying consolidated financial statementsas of June 30, 2010 andDecember 31, 2009 and for thethree and six months ended June 30,2010 and 2009 reflect the accounts of the Partnership.  All intercompany balances and transactionshave been eliminated.

 

Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United States (“GAAP”)and reflect all adjustments (consisting 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, 2009 andnotes thereto contained in the Partnership’s Annual Report on Form** **10-K.  The significant accounting policies describedin Note 2 “Summary of Significant Accounting Policies” of such AnnualReport on Form 10-K are the same used in preparing the accompanyingconsolidated financial statements.

 

The results of operations for the three and sixmonths ended June** **30, 2010are not necessarily indicative of the results of operations that will berealized for the entire year ending December** **31, 2010.  Theconsolidated balance sheet at December** **31,2009 has been derived from the audited consolidated financial statements andfootnotes thereto included in the Partnership’s Annual Report on Form** **10-K for theyear ended December 31, 2009.

 

6

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 1.****                     ****Organization and Basis of Presentation (continued)**

 

Asdemand for some of the Partnership’s refined petroleum products, specificallyhome heating oil and residual oil for space heating purposes, is generallygreater during the winter months, sales are generally higher during the firstand fourth quarters of the calendar year which may result in significantfluctuations in the Partnership’s quarterly operating results.

 

Thefollowing table presents the Partnership’s products as a percentage of totalsales for the periods presented:

 
|                                                     | ** ** | **Three  Months Ended  June 30,** | ** ** | **Six  Months Ended  June 30,** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
|                                                     | ** ** | **2010**                               | ** ** | **2009**                             | ** ** | **2010** | ** ** | **2009** | ** ** |
| Distillate sales: home heating oil, diesel and  kerosene |       | 30                                     | %          |                                 | 35         | % |   | 41 | % |   | 51 | % |   |
| Gasoline sales                                           |       | 65                                     | %          |                                 | 60         | % |   | 54 | % |   | 43 | % |   |
| Residual oil sales                                       |       | 5                                      | %          |                                 | 5          | % |   | 5 | % |   | 6 | % |   |
|                                                     |       | 100                                    | %          |                                 | 100        | % |   | 100 | % |   | 100 | % |   |

 

ThePartnership had one customer, ExxonMobil Oil Corporation (“ExxonMobil”), whoaccounted for approximately 23% and 25% of total sales for the three monthsended June 30, 2010, and2009, respectively and approximately 20% and 19% of total sales for the sixmonths ended June 30, 2010and 2009, respectively.

 

**Note 2.****                     ****Restatement**

 

Subsequentto the quarter ended June 30, 2010, following a change in the billing protocolfor a certain type of sales transaction for a specific customer, managementdiscovered that fuel tax credits associated with such sales transactions hadnot been properly recorded.  This codingerror resulted in the Partnership’s sales and net income being understated andaccrued tax liability being overstated as of and for the three and six monthsended June 30, 2010.  As a result, thePartnership has restated its unaudited financial statements for the correctionof an error as of and for the three and six months ended June 30,2010.  The error had no impact on thePartnership’s previously reported net cash provided by operating activities.

 

Thefollowing is a summary of the adjustments to the Partnership’s previouslyissued unaudited consolidated balance sheet as of June 30, 2010 (inthousands):

 
| ** **                                     | ** ** | **Previously  Reported** | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|-----------------|------------|--------------|------------|
| **Liabilities and partners’  equity**     |       |                     |       |            |       |         |       |
| Accrued expenses and other current liabilities |       | $                        | 88,469     |            | $          | (6,611       | )          | $ | 81,858 |   |
| Total current liabilities                      |       | $                        | 405,288    |            | $          | (6,611       | )          | $ | 398,677 |   |
| Total liabilities                              |       | $                        | 796,025    |            | $          | (6,611       | )          | $ | 789,414 |   |
|                                           |       |                     |       |            |       |         |       |
| **Partners’ equity**                      |       |                     |       |            |       |         |       |
| Common unitholders                             |       | $                        | 247,980    |            | $          | 4,161        |       | $ | 252,141 |   |
| Subordinated unitholders                       |       | $                        | (458       | )               | $          | 2,353        |       | $ | 1,895 |   |
| General partner interest                       |       | $                        | (19        | )               | $          | 97           |       | $ | 78 |   |
| Total partners’ equity                    |       | $                        | 232,867    |            | $          | 6,611        |       | $ | 239,478 |   |

 

7

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 2.****                     ****Restatement (continued)**

 

Thefollowing is a summary of the adjustments to the Partnership’s previouslyissued unaudited consolidated statement of operations for the three months andsix months ended June 30, 2010 (in thousands, except per unit data):

 
| *** ***                                                                                   | *** *** | ***Three Months Ended June 30, 2010*** | *** *** |
|------------------------------------------------------------------------------------------------|--------------|---------------------------------------------|--------------|
| ** **                                                                                     | ** **   | **Previously  Reported**                    | ** **   | **Adjustments** | ** ** | **Restated** | ** ** |
| Sales                                                                                          |         | $                                           | 1,530,451    |   | $ | 4,250 |   | $ | 1,534,701 |   |
| Gross profit                                                                                   |         | $                                           | 27,711       |   | $ | 4,250 |   | $ | 31,961 |   |
| Operating income                                                                               |         | $                                           | 3,283        |   | $ | 4,250 |   | $ | 7,533 |   |
| Loss (income) before income taxes                                                              |         | $                                           | (1,091       | ) | $ | 4,250 |   | $ | 3,159 |   |
| Net (loss) income                                                                              |         | $                                           | (1,091       | ) | $ | 4,250 |   | $ | 3,159 |   |
| General partner’s interest in net (loss) income,  including incentive distribution rights |         | $                                           | (50          | ) | $ | (57 | ) | $ | (107 | ) |
| Limited partners’ interest in net (loss) income                                           |         | $                                           | (1,141       | ) | $ | 4,193 |   | $ | 3,052 |   |
| Basic net income per limited partner unit                                                      |         | $                                           | (0.07        | ) | $ | 0.25 |   | $ | 0.18 |   |
| Diluted net income per limited partner unit                                                    |         | $                                           | (0.07        | ) | $ | 0.25 |   | $ | 0.18 |   |

 
| ** **                                                                              | ** ** | **Six  Months Ended June 30, 2010** | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                              | ** ** | **Previously  Reported**                 | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
| Sales                                                                                   |       | $                                        | 3,492,835  |   | $ | 6,611 |   | $ | 3,499,446 |   |
| Gross profit                                                                            |       | $                                        | 73,118     |   | $ | 6,611 |   | $ | 79,729 |   |
| Operating income                                                                        |       | $                                        | 22,762     |   | $ | 6,611 |   | $ | 29,373 |   |
| Income before income taxes                                                              |       | $                                        | 14,324     |   | $ | 6,611 |   | $ | 20,935 |   |
| Net income                                                                              |       | $                                        | 13,937     |   | $ | 6,611 |   | $ | 20,548 |   |
| General partner’s interest in net income,  including incentive distribution rights |       | $                                        | (349       | ) | $ | (97 | ) | $ | (446 | ) |
| Limited partners’ interest in net income                                           |       | $                                        | 13,588     |   | $ | 6,514 |   | $ | 20,102 |   |
| Basic net income per limited partner unit                                               |       | $                                        | 0.89       |   | $ | 0.43 |   | $ | 1.32 |   |
| Diluted net income per limited partner unit                                             |       | $                                        | 0.88       |   | $ | 0.42 |   | $ | 1.30 |   |

 

Thefollowing is a summary of the adjustments to the Partnership’s previouslyissued unaudited consolidated statement of cash flows for the six months endedJune 30, 2010 (in thousands).

 
| ** **                                                                       | ** ** | **Previously  Reported** | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------|------------|--------------|------------|
| Net income                                                                       |       | $                        | 13,937     |            | $          | 6,611        |       | $ | 20,548 |   |
| Accrued expenses, all other current liabilities  and other long-term liabilities |       | $                        | 9,864      |            | $          | (6,611       | )          | $ | 3,253 |   |

 

**Note 3.****                     ****Net Income Per Limited Partner Unit**

 

Underthe Partnership’s partnership agreement, for any quarterly period, theincentive distribution rights (“IDRs”) participate in net income only to theextent of the amount of cash distributions actually declared, thereby excludingthe IDRs from participating in the Partnership’s undistributed net income orlosses.  Accordingly, the Partnership’sundistributed net income is assumed to be allocated to the common andsubordinated unitholders, or limited partners’ interest, and to the GeneralPartner’s interest.

 

8

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 3.****                     ****Net Income Per Limited Partner Unit (continued)**

 

OnApril 21, 2010, the board of directors of the General Partner declared aquarterly cash distribution of $0.4875 per unit for the period fromJanuary 1, 2010 through March 31, 2010.  On July 21, 2010, the board declared aquarterly cash distribution of $0.4875 per unit for the period fromApril 1, 2010 through June 30, 2010. These declared cash distributions resulted in incentive distributions tothe General Partner, as the holder of the IDRs, and enabled the Partnership toreach its second target distribution with respect to such IDRs.  See Note 10, “Cash Distributions” for furtherinformation.

 

Thefollowing table provides a reconciliation of net income and the assumedallocation of net income to the limited partners’ interest for purposes ofcomputing net income per limited partner unit for the three and six monthsended June 30, 2010 and 2009 (in thousands, except per unit data):

 
| ** **                                                     | ** ** | **Three Months Ended June 30, 2010** | ** ** |
|----------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                     | ** ** | ** **                                | ** ** | **Limited** | ** ** | **General** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | ** **                                | ** ** | **Partner** | ** ** | **Partner** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **Total**                                 | ** ** | **Interest** | ** ** | **Interest** | ** ** | **IDRs** | ** ** |
| **Numerator:**                                                 |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Net income(1)                                                  |       | $                                         | 3,159      |   | $ | 3,052 |   | $ | 107 |   | $ | — |   |
|                                                           |       |                                      |       |   |   |   |   |   |   |
| Declared distribution                                          |       | $                                         | 8,455      |   | $ | 8,278 |   | $ | 112 |   | $ | 65 |   |
| Assumed allocation of undistributed net income                 |       | (5,296                                    | )          | (5,226 | ) | (70 | ) | — |   |
| Assumed allocation of net income                               |       | $                                         | 3,159      |   | $ | 3,052 |   | $ | 42 |   | $ | 65 |   |
|                                                           |       |                                      |       |   |   |   |   |   |   |
| **Denominator:**                                               |       |                                      |       |   |   |   |   |   |   |
| Basic weighted average limited partner units  outstanding(2)   |       |                                      |       | 16,917 |   |   |   |   |   |
| Dilutive effect of phantom units                               |       |                                      |       | 238 |   |   |   |   |   |
| Diluted weighted average limited partner units  outstanding(2) |       |                                      |       | 17,155 |   |   |   |   |   |
|                                                           |       |                                      |       |   |   |   |   |   |   |
| Basic net income per limited partner unit                      |       |                                      |       | $ | 0.18 |   |   |   |   |   |
| Diluted net income per limited partner unit                    |       |                                      |       | $ | 0.18 |   |   |   |   |   |

 
| ** **                                                  | ** ** | **Three  Months Ended June 30, 2009** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                  | ** ** | ** **                                 | ** ** | **Limited** | ** ** | **General** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | ** **                                 | ** ** | **Partner** | ** ** | **Partner** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | **Total**                                  | ** ** | **Interest** | ** ** | **Interest** | ** ** | **IDRs** | ** ** |
| **Numerator:**                                              |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Net income(1)                                               |       | $                                          | 978        |   | $ | 911 |   | $ | 67 |   | $ | — |   |
|                                                        |       |                                       |       |   |   |   |   |   |   |
| Declared distribution                                       |       | $                                          | 6,534      |   | $ | 6,372 |   | $ | 112 |   | $ | 50 |   |
| Assumed allocation of undistributed net income              |       | (5,556                                     | )          | (5,461 | ) | (95 | ) | — |   |
| Assumed allocation of net income                            |       | $                                          | 978        |   | $ | 911 |   | $ | 17 |   | $ | 50 |   |
|                                                        |       |                                       |       |   |   |   |   |   |   |
| **Denominator:**                                            |       |                                       |       |   |   |   |   |   |   |
| Basic weighted average limited partner units  outstanding   |       |                                       |       | 13,059 |   |   |   |   |   |
| Dilutive effect of phantom units                            |       |                                       |       | 297 |   |   |   |   |   |
| Diluted weighted average limited partner units  outstanding |       |                                       |       | 13,356 |   |   |   |   |   |
|                                                        |       |                                       |       |   |   |   |   |   |   |
| Basic net income per limited partner unit                   |       |                                       |       | $ | 0.07 |   |   |   |   |   |
| Diluted net income per limited partner unit                 |       |                                       |       | $ | 0.07 |   |   |   |   |   |

 

9

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 3.****                     ****Net Income Per Limited Partner Unit (continued)**

 
| ** **                                                     | ** ** | **Six  Months Ended June 30, 2010** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                     | ** ** | ** **                               | ** ** | **Limited** | ** ** | **General** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | ** **                               | ** ** | **Partner** | ** ** | **Partner** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **Total**                                | ** ** | **Interest** | ** ** | **Interest** | ** ** | **IDRs** | ** ** |
| **Numerator:**                                                 |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| Net income(1)                                                  |       | $                                        | 20,548     |   | $ | 20,102 |   | $ | 446 |   | $ | — |   |
|                                                           |       |                                     |       |   |   |   |   |   |   |
| Declared distribution                                          |       | $                                        | 16,910     |   | $ | 16,556 |   | $ | 224 |   | $ | 130 |   |
| Assumed allocation of undistributed net income                 |       | 3,638                                    |       | 3,546 |   | 92 |   | — |   |
| Assumed allocation of net income                               |       | $                                        | 20,548     |   | $ | 20,102 |   | $ | 316 |   | $ | 130 |   |
|                                                           |       |                                     |       |   |   |   |   |   |   |
| **Denominator:**                                               |       |                                     |       |   |   |   |   |   |   |
| Basic weighted average limited partner units  outstanding(2)   |       |                                     |       | 15,260 |   |   |   |   |   |
| Dilutive effect of phantom units                               |       |                                     |       | 236 |   |   |   |   |   |
| Diluted weighted average limited partner units  outstanding(2) |       |                                     |       | 15,496 |   |   |   |   |   |
|                                                           |       |                                     |       |   |   |   |   |   |   |
| Basic net income per limited partner unit                      |       |                                     |       | $ | 1.32 |   |   |   |   |   |
| Diluted net income per limited partner unit                    |       |                                     |       | $ | 1.30 |   |   |   |   |   |

 
| ** **                                                  | ** ** | **Six  Months Ended June 30, 2009** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                  | ** ** | ** **                               | ** ** | **Limited** | ** ** | **General** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | ** **                               | ** ** | **Partner** | ** ** | **Partner** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | **Total**                                | ** ** | **Interest** | ** ** | **Interest** | ** ** | **IDRs** | ** ** |
| **Numerator:**                                              |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| Net income(1)                                               |       | $                                        | 19,841     |   | $ | 19,398 |   | $ | 443 |   | $ | — |   |
|                                                        |       |                                     |       |   |   |   |   |   |   |
| Declared distribution                                       |       | $                                        | 13,068     |   | $ | 12,744 |   | $ | 224 |   | $ | 100 |   |
| Assumed allocation of undistributed net income              |       | 6,773                                    |       | 6,654 |   | 119 |   | — |   |
| Assumed allocation of net income                            |       | $                                        | 19,841     |   | $ | 19,398 |   | $ | 343 |   | $ | 100 |   |
|                                                        |       |                                     |       |   |   |   |   |   |   |
| **Denominator:**                                            |       |                                     |       |   |   |   |   |   |   |
| Basic weighted average limited partner units  outstanding   |       |                                     |       | 13,065 |   |   |   |   |   |
| Dilutive effect of phantom units                            |       |                                     |       | 208 |   |   |   |   |   |
| Diluted weighted average limited partner units  outstanding |       |                                     |       | 13,273 |   |   |   |   |   |
|                                                        |       |                                     |       |   |   |   |   |   |   |
| Basic net income per limited partner unit                   |       |                                     |       | $ | 1.48 |   |   |   |   |   |
| Diluted net income per limited partner unit                 |       |                                     |       | $ | 1.46 |   |   |   |   |   |

 

----

(1)             Calculation includes the effect of thepublic offering on March 19, 2010 (see Note 16) and, as a result, thegeneral partner interest was reduced to 1.34% for the three months endedJune 30, 2010 and, based on a weighted average, 1.61% for the six monthsended June 30, 2010.  For the threeand six months ended June 30, 2009, the general partner interest was1.73%.

(2)             At June 30, 2010, limited partnerunits outstanding excluded common units held on behalf of the Partnershippursuant to its Repurchase Program and for future satisfaction of the GeneralPartner’s Obligations (as defined in Note 14).  These units are not deemed outstandingfor purposes of calculating net income per limited partner unit (basic anddiluted).

 

10

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 4.****                     ****Comprehensive (Loss) Income**

 

Thecomponents of comprehensive (loss) income consisted of the following (inthousands):

 
|                                                                     | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended** |       |
|--------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
|                                                                     | ** ** | **June 30,**       | ** ** | **June 30,**     |       |
|                                                                     | ** ** | **2010**                | ** ** | **2009**              | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net income                                                               |       | $                       | 3,159      |                  | $          | 978 |   | $ | 20,548 |   | $ | 19,841 |   |
| Change in fair value of interest rate collars and  forward starting swap |       | (4,879                  | )          | 2,263                 |       | (7,111 | ) | 3,415 |   |
| Change in pension liability                                              |       | (679                    | )          | 593                   |       | (558 | ) | 351 |   |
| Total comprehensive (loss) income                                        |       | $                       | (2,399     | )                     | $          | 3,834 |   | $ | 12,879 |   | $ | 23,607 |   |

 

**Note 5.****                     ****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 in earnings as an increase or decrease in cost of sales.  All hedged inventory is valued using the lowerof cost, as determined by specific identification, or market.  Prior to sale, hedges are removed fromspecific barrels of inventory, and the then unhedged inventory is sold andaccounted for on a first-in, first-out basis.

 

Inventoriesconsisted of the following (in thousands):

 

|                                               | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Distillates: home heating oil, diesel and kerosene |       | $                       | 283,033    |                        | $          | 339,737 |   |
| Residual oil                                       |       | 44,330                  |       | 39,787                      |       |
| Gasoline                                           |       | 88,827                  |       | 64,645                      |       |
| Blend stock                                        |       | 27,106                  |       | 21,754                      |       |
| Total                                              |       | $                       | 443,296    |                        | $          | 465,923 |   |

 

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 $34.7 million and$22.9 million at June 30, 2010 and December 31, 2009,respectively.  Negative exchange balancesare accounted for as accounts payable and amounted to $30.9 million and$10.2 million at June 30, 2010 and December 31, 2009,respectively.  Exchange transactions arevalued using current quoted market prices.

 

**Note 6.****                     ****Derivative Financial Instruments**

 

Accounting and reporting guidance for derivativeinstruments and hedging activities requires that an entity recognizederivatives as either assets or liabilities on the balance sheet and measurethe instruments at fair value.  Changesin the fair value of the derivative are to be recognized currently in earnings,unless specific hedge accounting criteria are met.

 

11

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 6.****                     ****Derivative Financial Instruments (continued)**

 

The following table presents the volume of activityrelated to the Partnership’s derivative financial instruments at June** **30, 2010:

 

| ** **            | ** ** | **Units(1)** | ** ** | **Unit of  Measure**    | ** **          |
|-----------------------|------------|--------------|------------|-------------------------|---------------------|
| Oil Contracts         |       |         |       |                    |                |
| Long                  |       | 10,192       |       | Thousands of barrels    |                |
| Short                 |       | (14,373      | )          | Thousands of barrels    |                |
|                  |       |         |       |                    |                |
| Natural Gas Contracts |       |         |       |                    |                |
| Long                  |       | 20,487       |       | Thousands of decatherms |                |
| Short                 |       | (20,487      | )          | Thousands of decatherms |                |
|                  |       |         |       |                    |                |
| Interest Rate Collars |       | $            | 200        |                    | Millions of dollars |   |
|                  |       |         |       |                    |                |
| Forward Starting Swap |       | $            | 100        |                    | Millions of dollars |   |

 

(1)             Number of open positions andgross notional amounts do not quantify risk or represent assets or liabilitiesof the Partnership, but are used in the calculation of cash settlements underthe contracts.

 

***Fair Value Hedges***

 

The fair value of the Partnership’s derivatives isdetermined through the use of independent markets and is based upon theprevailing market prices of such instruments at the date of valuation.  The Partnership enters into futures contractsfor the receipt or delivery of refined petroleum products in futureperiods.  The contracts are entered intoin the normal course of business to reduce risk of loss of inventory on hand,which could result through fluctuations in market prices.  Changes in the fair value of these contracts,as well as the offsetting gain or loss on the hedged inventory item, arerecognized in earnings as an increase or decrease in cost of sales.  Ineffectiveness related to these hedgingactivities was immaterial for the three and six months ended June** **30, 2010 and 2009.

 

The Partnership also uses futures contracts andswap agreements to hedge exposure under forward purchase and salecommitments.  These agreements areintended 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 in earnings as an increase or decrease in cost of sales.  Gains and losses on net product margin fromforward fixed price purchase and sale contracts are reflected in earnings as anincrease or decrease in cost of sales as these contracts mature.  Ineffectiveness related to these hedgingactivities was immaterial for the three and six months ended June 30, 2010and 2009.

 

12

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 6.****                     ****Derivative Financial Instruments (continued)**

 

Thefollowing table presents the gross fair values of the Partnership’s derivativeinstruments and firm commitments and their location in the Partnership’sconsolidated balance sheets at June 30, 2010 and December 31, 2009(in thousands):

 
| ** **                                                             | ** ** | ** **          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------|------------|---------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                             | ** ** | **Balance  Sheet**  | ** ** | **2010**          | ** ** | **2009**              | ** ** |
| **Asset Derivatives**                                                  | ** ** | **Location  (Net)** | ** ** | **Fair  Value**   | ** ** | **Fair  Value**       | ** ** |
|                                                                   |       |                |       |              |       |                  |       |
| *Derivatives  designated as hedging instruments and  firm commitments* |       |                |       |              |       |                  |       |
| Oil product contracts(1)                                               |       | (2)                 |       | $                 | 5,919      |                  | $          | 4,085 |   |
|                                                                   |       |                |       |              |       |                  |       |
| *Derivatives not designated as  hedging instruments*                   |       |                |       |              |       |                  |       |
| Oil product and natural gas contracts                                  |       | (2)                 |       | 9,798             |       | 11,067                |       |
|                                                                   |       |                |       |              |       |                  |       |
| Total asset derivatives                                                |       |                |       | $                 | 15,717     |                  | $          | 15,152 |   |
|                                                                   |       |                |       |              |       |                  |       |
| **Liability Derivatives**                                              | ** ** | ** **          | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                                   |       |                |       |              |       |                  |       |
| *Derivatives  designated as hedging instruments and  firm commitments* |       |                |       |              |       |                  |       |
| Oil product contracts(1)                                               |       | (3)                 |       | $                 | 4,636      |                  | $          | 23,030 |   |
|                                                                   |       |                |       |              |       |                  |       |
| *Derivatives not designated as  hedging instruments*                   |       |                |       |              |       |                  |       |
| Oil product and natural gas contracts                                  |       | (4)                 |       | 9,602             |       | 10,805                |       |
|                                                                   |       |                |       |              |       |                  |       |
| Total liability derivatives                                            |       |                |       | $                 | 14,238     |                  | $          | 33,835 |   |

 

(1)      Includes forward fixed price purchase andsale contracts as recognized in the Partnership’s consolidated balance sheetsat June 30, 2010 and December 31, 2009.

(2)      Fair value of forward fixed pricecontracts and prepaid expenses and other current assets

(3)      Obligations on forward fixed pricecontracts and other derivatives and accrued expenses and other currentliabilities

(4)      Obligations on forward fixed price contractsand other derivatives and accrued expenses and other current liabilities

 

13

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 6.****                     ****Derivative Financial Instruments (continued)**

 

Thefollowing table presents the amount of gains and losses from derivativesinvolved in fair value hedging relationships recognized in the Partnership’sconsolidated statements of income for the three and six months endedJune 30, 2010 and 2009 (in thousands):

 
| ** **                    | ** ** | ** **                   | ** ** | **Amount  of Gain (Loss) Recognized in** | ** ** |
|-------------------------------|------------|------------------------------|------------|------------------------------------------|------------|
| ** **                    | ** ** | ** **                   | ** ** | **Income  on Derivatives**               | ** ** |
| ** **                    | ** ** | **Location  of Gain (Loss)** | ** ** | **Three  Months Ended**                  | ** ** | **Six  Months Ended** | ** ** |
| **Derivatives in Fair Value** | ** ** | **Recognized  in**           | ** ** | **June 30,**                        | ** ** | **June 30,** | ** ** |
| **Hedging Relationships**     | ** ** | **Income  on Derivative**    | ** ** | **2010**                                 | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** |
|                          |       |                         |       |                                     |       |   |   |   |   |   |   |
| Oil product contracts         |       | Cost of sales                |       | $                                        | 42,230     |   | $ | (99,378 | ) | $ | 42,203 |   | $ | (199,602 | ) |
|                               |            |                              |            |                                          |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                     | ** ** | ** **                   | ** ** | **Amount  of Gain (Loss) Recognized in** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|------------------------------------------|------------|
| ** **                                     | ** ** | ** **                   | ** ** | **Income  on Hedged Items**              | ** ** |
| ** **                                     | ** ** | **Location  of Gain (Loss)** | ** ** | **Three  Months Ended**                  | ** ** | **Six  Months Ended** | ** ** |
| **Hedged Items in Fair Value**                 | ** ** | **Recognized  in**           | ** ** | **June 30,**                        | ** ** | **June 30,** | ** ** |
| **Hedged Relationships**                       | ** ** | **Income  on Hedged Items**  | ** ** | **2010**                                 | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                           |       |                         |       |                                     |       |   |   |   |   |   |   |
| Inventories  and forward fixed price contracts |       | Cost of sales                |       | $                                        | (42,332    | ) | $ | 99,699 |   | $ | (42,305 | ) | $ | 200,247 |   |
|                                                |            |                              |            |                                          |            |  |  |  |  |  |  |  |  |  |  |

 

ThePartnership’s derivative financial instruments do not contain creditrisk-related or other contingent features that could cause accelerated paymentswhen these financial instruments are in net liability positions.

 

Thetable below presents the composition and fair value of forward fixed pricepurchase and sale contracts on the Partnership’s consolidated balance sheetbeing hedged by the following derivative instruments (in thousands):

 
| ** **           | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|----------------------|------------|-------------------------|------------|-----------------------------|------------|
| Futures contracts    |       | $                       | (865       | )                           | $          | (14,605 | ) |
| Swaps and other, net |       | (502                    | )          | (3,420                      | )          |
| Total                |       | $                       | (1,367     | )                           | $          | (18,025 | ) |

 

The total balances of $(1.4) million and$(18.0) million reflect the fair value of the forward fixed price contractliability net of the corresponding asset on the accompanying consolidatedbalance sheets at June 30, 2010 and December 31, 2009, respectively.

 

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

 

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.

 

14

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 6.****                     ****Derivative Financial Instruments (continued)**

 

ThePartnership has a daily margin requirement with its broker based on the priorday’s market results on open futures contracts. The brokerage margin balance was $19.8 million and$18.1 million at June 30, 2010 and December 31, 2009,respectively.

 

ThePartnership is exposed to credit loss in the event of nonperformance bycounterparties of forward purchase and sale commitments, futures contracts,options and swap agreements, but the Partnership has no current reason toexpect any material nonperformance by any of these counterparties.  Futures contracts, the primary derivativeinstrument utilized by the Partnership, are traded on regulated exchanges,greatly reducing potential credit risks. The Partnership utilizes primarily one clearing broker, a majorfinancial institution, for all New YorkMercantile Exchange****(“NYMEX”)derivative transactions and the right of offset exists.  Accordingly, the fair value of all derivativeinstruments is presented on a net basis on the consolidated balancesheets.  Exposure on forward purchase andsale commitments, swap and certain option agreements is limited to the amountof the recorded fair value as of the balance sheet dates.

 

ThePartnership generally enters into master netting arrangements to mitigatecounterparty credit risk with respect to its derivatives.  Master netting arrangements are standardizedcontracts that govern all specified transactions with the same counterparty andallow the Partnership to terminate all contracts upon occurrence of certainevents, such as a counterparty’s default or bankruptcy.  Because these arrangements provide the rightof offset, and the Partnership’s intent and practice is to offset amounts inthe case of contract terminations, the Partnership records fair value ofderivative positions on a net basis.

 

***Cash Flow Hedges***

 

The Partnership links all hedgesthat are designated as cash flow hedges to forecasted transactions.  To the extent such hedges are effective, thechanges in the fair value of the derivative instrument are reported as acomponent of other comprehensive income and reclassified into interest expensein the same period during which the hedged transaction affects earnings.

 

The Partnership executed two zeropremium interest rate collars with major financial institutions.  Each collar is designated and accounted foras a cash flow hedge.  The first collar,which became effective on May 14,2007 and expires on May 14,2011, is used to hedge the variability in interest payments due to changes inthe three-month LIBOR rate with respect to $100.0 million of three-month LIBOR-based borrowings.  Under the first collar, the Partnershipcapped its exposure at a maximum three-month LIBOR rate of 5.75% andestablished a minimum floor rate of 3.75%. As of June 30, 2010, thethree-month LIBOR rate of 0.43% was lower than the floor rate.  As a result, in August 2010, thePartnership will remit to the respective financial institution the differencebetween the floor rate and the current rate which amounted to approximately$442,600 and, at June 30, 2010, such amount was recorded in accrued expensesand other current liabilities in the accompanying consolidated balancesheets.  Thefair values of the first collar, excluding accrued interest, were liabilitiesof approximately $2.7 millionand $3.9 millionas of June 30, 2010and December 31,2009, respectively, and were recorded in both other long-term liabilities andaccumulated other comprehensive income. Hedge effectiveness was assessed at inception and is assessed quarterly,prospectively and retrospectively.  The changes in the fair value of the firstcollar are expected to be highly effective in offsetting the changes ininterest rate payments attributable to fluctuations in the three-month LIBORrate above and below the first collar’s strike rates.

 

15

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 6.****                     ****Derivative Financial Instruments (continued)**

 

On September 29, 2008, the Partnership executed its second zero premiuminterest rate collar.  The second collar,which became effective on October 2, 2008 and expires on October 2, 2013, is used to hedge the variability in cash flows in monthlyinterest payments made on the Partnership’s $100.0 million one-month LIBOR-based borrowings (and subsequentrefinancings thereof) due to changes in the one-month LIBOR rate.  Under the second collar, the Partnershipcapped its exposure at a maximum one-month LIBOR rate of 5.50% and established a minimum floor rate of2.70%.  As of June 30, 2010, the one-month LIBOR rate of 0.35% was lowerthan the floor rate.  As a result, in July 2010,the Partnership remitted to the respective financial institution the differencebetween the floor rate and the current rate which amounted to approximately$189,200 and, at June 30, 2010, such amount was recorded in accrued expensesand other current liabilities in the accompanying consolidated balancesheet.  Thefair values of the second collar, excluding accrued interest, were liabilitiesof approximately $4.9 millionand $3.2 millionas of June 30, 2010and December 31,2009, respectively, and were recorded in both other long-term liabilities andaccumulated other comprehensive income in the accompanying consolidated balancesheets.  Hedge effectiveness was assessedat inception and is assessed quarterly, prospectively and retrospectively,using the regression analysis.  The changes in the fair value of the secondcollar are expected to be highly effective in offsetting the changes ininterest rate payments attributable to fluctuations in the one-month LIBOR rateabove and below the second collar’s strike rates.

 

In addition, in October 2009,the Partnership executed a forward starting swap with a major financialinstitution.  The swap, which will becomeeffective on May 16,2011 and expire on May 16,2016, will be used to hedge the variability in interest payments due to changesin the one-month LIBOR swap curve with respect to $100.0 million of one-month LIBOR-based borrowings at a fixed rateof 3.93%.  Thefair value of the swap was a liability of approximately $6.5 million as of June 30, 2010 and was recorded in other long-term liabilities inthe accompanying consolidated balance sheets. The fair value of the swap was an asset of approximately $80,000 as ofDecember 31, 2009 and was recorded in other long-term assets in theaccompanying consolidated balance sheets. Hedge effectiveness was assessed at inception and will be assessedquarterly, prospectively and retrospectively, using regression analysis.  The changes in the fairvalue of the swap are expected to be highly effective in offsetting the changesin interest rate payments attributable to fluctuations in the one-month LIBORswap curve.

 

Thefollowing table presents the fair value of the Partnership’s derivativeinstruments and their location in the Partnership’s consolidated balance sheetsat June 30, 2010 and December 31, 2009 (in thousands):

 
| ** **                    | ** ** | ** **                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|-----------------------------|------------|-------------------|------------|-----------------------|------------|
| **Derivatives Designated as** | ** ** | **Balance  Sheet**          | ** ** | **2010**          | ** ** | **2009**              | ** ** |
| **Hedging Instruments**       | ** ** | **Location**                | ** ** | **Fair  Value**   | ** ** | **Fair  Value**       | ** ** |
|                          |       |                        |       |              |       |                  |       |
| *Asset derivatives*           |       |                        |       |              |       |                  |       |
| Forward starting swap         |       | Other assets                |       | $                 | —     |                  | $          | 80 |   |
|                          |       |                        |       |              |       |                  |       |
| *Liability derivatives*       |       |                        |       |              |       |                  |       |
| Interest rate collars         |       | Other long-term liabilities |       | $                 | 7,577      |                  | $          | 7,047 |   |
| Forward starting swap         |       | Other long-term liabilities |       | 6,501             |       | —                |       |
| Total liability derivatives   |       |                        |       | $                 | 14,078     |                  | $          | 7,047 |   |

 

16

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 6.****                     ****Derivative Financial Instruments (continued)**

 

Thefollowing table presents the amount of gains and losses from derivativesinvolved in cash flow hedging relationships recognized in the Partnership’sconsolidated statements of income and partners’ equity for the three and sixmonths ended June 30, 2010 and 2009 (in thousands):

 
| ** **               | ** ** | ** **                 |       |                          | ** ** | **Recognized  in Income**  |       |                          |       |              | ** ** | **Recognized  in Income** | ** ** |
|--------------------------|------------|----------------------------|------------|-------------------------------|------------|----------------------------|------------|-------------------------------|------------|-------------------|------------|---------------------------|------------|
| ** **               | ** ** | ** **                 |       |                          | ** ** | **on  Derivatives**        |       |                          |       |              | ** ** | **on  Derivatives**       | ** ** |
| ** **               | ** ** | **Amount  of Gain (Loss)** | ** ** | **(Ineffectiveness  Portion** | ** ** | **Amount  of Gain (Loss)** | ** ** | **(Ineffectiveness  Portion** | ** ** |
| ** **               | ** ** | **Recognized  in Other**   | ** ** | **and  Amount Excluded**      | ** ** | **Recognized  in Other**   | ** ** | **and  Amount Excluded**      | ** ** |
| ** **               | ** ** | **Comprehensive  Income**  | ** ** | **from  Effectiveness**       | ** ** | **Comprehensive  Income**  | ** ** | **from  Effectiveness**       | ** ** |
| ** **               | ** ** | **on  Derivatives**        | ** ** | **Testing)**                  | ** ** | **on  Derivatives**        | ** ** | **Testing)**                  | ** ** |
| **Derivatives in**       | ** ** | **Three  Months Ended**    | ** ** | **Three  Months Ended**       | ** ** | **Six  Months Ended**      | ** ** | **Six  Months Ended**         | ** ** |
| **Cash Flow**            | ** ** | **June 30,**          | ** ** | **June 30,**             | ** ** | **June 30,**          | ** ** | **June 30,**             | ** ** | **June 30,** | ** ** | **June 30,**         | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| **Hedging Relationship** | ** ** | **2010**                   | ** ** | **2009**                      | ** ** | **2010**                   | ** ** | **2009**                      | ** ** | **2010**          | ** ** | **2009**                  | ** ** | **2010** | ** ** | **2009** | ** ** |
|                     |       |                       |       |                          |       |                       |       |                          |       |              |       |                      |       |   |   |   |   |
| Interest rate collars    |       | $                          | (161       | )                             | $          | 2,263                      |       | $                             | —     |              | $          | —                    |       | $ | (529 | ) | $ | 3,415 |   | $ | — |   | $ | — |   |
| Forward starting swap    |       | (4,718                     | )          | —                        |       | —                     |       | —                        |       | (6,582            | )          | —                    |       | — |   | — |   |
| Total                    |       | $                          | (4,879     | )                             | $          | 2,263                      |       | $                             | —     |              | $          | —                    |       | $ | (7,111 | ) | $ | 3,415 |   | $ | — |   | $ | — |   |

 

Ineffectiveness related to the interest ratecollars and forward starting swap is recognized as interest expense and wasimmaterial for the three and six months ended June 30, 2010 and 2009.  The effective portion related to the interestrate collars that was originally reported in other comprehensive income andreclassified to earnings was $1.5 million and $3.0 million for thethree and six months ended June 30, 2010, respectively, and$1.3 million and $2.3 million for the three and six months endedJune 30, 2009, respectively.

 

***Derivatives Not Involved in a Hedging Relationship***

 

Whilethe Partnership seeks to maintain a position that is substantially balancedwithin its product purchase activities, it may experience net unbalancedpositions for short periods of time as a result of variances in daily sales andtransportation and delivery schedules as well as logistical issues inherent inthe business, such as weather conditions. In connection with managing these positions and maintaining a constantpresence in the marketplace, both necessary for its business, the Partnershipengages in a controlled trading program for up to an aggregate of 250,000barrels of refined petroleum products at any one point in time.

 

Thefollowing table presents the amount of gains and losses from derivatives notinvolved in a hedging relationship recognized in the Partnership’s consolidatedstatements of income for the three and six months ended June 30, 2010 and2009 (in thousands):

 
| ** **                        | ** ** | ** **         | ** ** | **Amount  of Gain (Loss)** | ** ** | **Amount  of Gain (Loss)** |       |
|-----------------------------------|------------|--------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                        | ** ** | **Location  of**   | ** ** | **Recognized  in Income**  | ** ** | **Recognized  in Income**  |       |
| ** **                        | ** ** | **Gain  (Loss)**   | ** ** | **on  Derivatives**        | ** ** | **on  Derivatives**        |       |
| ** **                        | ** ** | **Recognized  in** | ** ** | **Three  Months Ended**    | ** ** | **Six  Months Ended**      |       |
| **Derivatives Not Designated as** | ** ** | **Income  on**     | ** ** | **June 30,**          | ** ** | **June 30,**          | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| **Hedging Instruments**           | ** ** | **Derivatives**    | ** ** | **2010**                   | ** ** | **2009**                   | ** ** | **2010** | ** ** | **2009** | ** ** |
|                              |       |               |       |                       |       |                       |       |   |   |   |   |
| Oil product contracts             |       | Cost of sales      |       | $                          | 1,652      |                       | $          | 1,767 |   | $ | 1,131 |   | $ | 5,752 |   |
|                                   |            |                    |            |                            |            |                            |            |  |  |  |  |  |  |  |  |

 

17

----

** **

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 7.****                     ****Debt**

 

OnMay 14, 2010, the Partnership entered into an Amended and Restated CreditAgreement (the “Credit Agreement”), increasing the Aggregate Commitments (asdefined in the Credit Agreement) available under the Credit Agreement to $950.0million from $850.0 million under the previous credit agreement.  The Credit Agreement will mature onMay 14, 2014.

 

Thereare two facilities under the Credit Agreement:

 

·              a working capital revolving credit facility to beused for working capital purposes and letters of credit in the principal amountequal to the lesser of the Partnership’s borrowing base and $800.0 million; and

 

·              a $150.0 million revolving credit facility tobe used for acquisitions and general corporate purposes.

 

Inaddition, the Credit Agreement has an accordion feature whereby the Partnershipmay request on the same terms and conditions of its then existing CreditAgreement, provided no Event of Default (as defined in the Credit Agreement) thenexists, an increase to the revolving credit facility, the working capitalrevolving credit facility, or both, by up to another $200.0 million, for atotal credit facility of up to $1.15 billion.  Any such request for an increase by thePartnership must be in a minimum amount of $5.0 million.  The Partnership cannot provide assurance,however, that its lending group will agree to fund any request by thePartnership for additional amounts in excess of the total available commitmentsof $950.0** **million.

 

Availabilityunder the Partnership’s working capital revolving credit facility is subject toa borrowing base which is redetermined from time to time and based on specificadvance rates on eligible current assets. Under the Credit Agreement, the Partnership’s borrowings cannot exceedthe then current borrowing base. Availability under the Partnership’s borrowing base may be affected byevents beyond the Partnership’s control, such as changes in refined petroleumproduct prices, collection cycles, counterparty performance, advance rates andlimits, and general economic conditions. These and other events could require the Partnership to seek waivers oramendments of covenants or alternative sources of financing or to reduceexpenditures.  The Partnership canprovide no assurance that such waivers, amendments or alternative financingcould be obtained or, if obtained, would be on terms acceptable to thePartnership.

 

Duringthe period from January 1, 2009 through May 13, 2010, borrowingsunder the previous credit agreement under the working capital revolving creditfacility bore interest at (1) the Eurodollar rate plus 1.75% to 2.25%,(2) the cost of funds rate plus 1.75% to 2.25%, or (3) the base rateplus 0.75% to 1.25%, each depending on the pricing level provided in theprevious credit agreement, which in turn depended upon the Combined InterestCoverage Ratio (as defined in the previous credit agreement).  Borrowings under the acquisition andrevolving credit facilities bore interest at (1) the Eurodollar rate plus2.25% to 2.75%, (2) the cost of funds rate plus 1.75% to 2.25%, or(3) the base rate plus 0.75% to 1.25%, each depending on the pricing levelprovided in the previous credit agreement, which in turn depended upon theCombined Interest Coverage Ratio.

 

CommencingMay 14, 2010 under the Credit Agreement, borrowings under the workingcapital revolving credit facility bear interest at (1) the Eurodollar rateplus 2.50% to 3.00%, (2) the cost of funds rate plus 2.50% to 3.00%, or(3) the base rate plus 1.50% to 2.00%, each depending on the pricing levelprovided in the Credit Agreement, which in turn depends upon the UtilizationAmount (as defined in the Credit Agreement). Borrowings under the revolving credit facility bear interest at(1) the Eurodollar rate plus 3.00% to 3.25%, (2) the cost of fundsrate plus 3.00% to 3.25%, or (3) the base rate plus 2.00% to 2.25%, eachdepending on the pricing level provided in the Credit Agreement, which in turndepends upon the Combined Senior Secured Leverage Ratio (as defined in theCredit Agreement).  The average interestrates for the Credit Agreement were 4.1% and 3.8% for the three months endedJune 30, 2010 and 2009, respectively, and 3.6% and 3.8% for the six monthsended June 30, 2010 and 2009, respectively.

 

18

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 7.****                     ****Debt (continued)**

 

The Partnership executed two zeropremium interest rate collars and a forward starting swap which are used tohedge the variability in interest payments under the Credit Agreement due tochanges in LIBOR rates.  See Note 6 for additional information on the interest rate collarsand the forward starting swap.

 

ThePartnership incurs a letter of credit fee of 2.50% — 3.00% per annum for eachletter of credit issued.  In addition,the Partnership incurs a commitment fee on the unused portion of each facilityunder the Credit Agreement equal to 0.50% per annum.

 

ThePartnership classifies a portion of its working capital revolving creditfacility as a long-term liability because the Partnership has a multi-year,long-term commitment from its bank group. The long-term portion of the working capital revolving credit facilitywas $269.3 million and $240.9 million at June 30, 2010 andDecember 31, 2009, respectively, representing the amounts expected to beoutstanding during the year.  Inaddition, the Partnership classifies a portion of its working capital revolvingcredit facility as a current liability because it repays amounts outstandingand reborrows funds based on its working capital requirements.  The current portion of the working capitalrevolving credit facility was approximately $101.3 million and$221.7 million at June 30, 2010 and December 31, 2009,respectively, representing the amounts the Partnership expects to pay downduring the course of the year.

 

Asof June 30, 2010, the Partnership had total borrowings outstanding underthe Credit Agreement of $468.4 million, including $97.8 millionoutstanding on the acquisition facility. In addition, the Partnership had outstanding letters of credit of$43.5 million.  The total remainingavailability for borrowings and letters of credit at June 30, 2010 andDecember 31, 2009 was $438.1 million and $211.2 million,respectively.

 

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 financial covenants that require the Partnership tomaintain certain minimum working capital amounts, capital expenditure limits, aminimum EBITDA, a minimum combined interest coverage ratio, a maximum seniorsecured leverage ratio and a maximum total leverage ratio.  The Partnership was in compliance with theforegoing covenants at June 30, 2010. The Credit Agreement also contains a representation whereby there can beno event or circumstance, either individually or in the aggregate, that has hador could reasonably be expected to have a Material Adverse Effect (as definedin the Credit Agreement).  Under theCredit Agreement, the clean down requirement of the previous credit agreementwas eliminated.

 

TheCredit Agreement limits distributions by the Partnership to its unitholders tothe amount of the Partnership’s available cash.

 

19

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 7.       Debt (continued)**

 

Thelending group under the Credit Agreement is comprised of the followinginstitutions: Bank of America, N.A.; JPMorgan Chase Bank, N.A.; WellsFargo Bank, N.A.; Societe Generale; Standard Chartered Bank;RBS Citizens, National Association; BNP Paribas; Cooperative CentraleRaiffeisen-Boerenleenbank B.A., “Radobank Nederland” New York Branch;Sovereign Bank (Santander Group); Credit Agricole Corporate and InvestmentBank; Keybank National Association; Toronto Dominion (New York);RZB Finance LLC; Royal Bank of Canada; Raymond James Bank, FSB;Barclays Bank plc; Webster Bank, National Association; Natixis, New YorkBranch; DZ Bank AG Deutsche Zentral-Genossenschaftsbank Frankfurt AmMain; Branch Banking & Trust Company; and Sumitomo Mitsui BankingCorporation.

 

**Note 8.****                     ****Employee Benefit Plan with Related Party**

 

The General Partner employs substantially all ofthe Partnership’s employees and charges the Partnership for theirservices.  The Partnership alsoreimburses the General Partner for its contributions under the General Partner’s401(k) Savings and Profit Sharing Plan and the General Partner’s qualifiedand non-qualified pension plans.  ThePartnership’s net periodic benefit cost for the defined benefit pension planconsisted of the following components (in thousands):

 
|                           | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended** |       |
|--------------------------------|------------|-------------------------|------------|-----------------------|------------|
|                           | ** ** | **June 30,**       | ** ** | **June 30,**     |       |
|                           | ** ** | **2010**                | ** ** | **2009**              | ** ** | **2010** | ** ** | **2009** | ** ** |
| Service cost                   |       | $                       | 54         |                  | $          | 325 |   | $ | 107 |   | $ | 650 |   |
| Interest cost                  |       | 164                     |       | 228                   |       | 327 |   | 457 |   |
| Expected return on plan assets |       | (171                    | )          | (160                  | )          | (340 | ) | (321 | ) |
| Recognized net actuarial loss  |       | —                  |       | 48                    |       | — |   | 96 |   |
| Net periodic benefit cost      |       | $                       | 47         |                  | $          | 441 |   | $ | 94 |   | $ | 882 |   |

 

EffectiveDecember** **31, 2009, the General Partner’squalified pension plan (the “Plan”) was amended to freeze participation in andbenefit accruals under the Plan. Primarily for this reason, the net periodic benefit cost decreased byapproximately $0.4** **millionand $0.8** **million for the three and sixmonths ended June** **30, 2010, respectively,compared to the same periods in 2009.

 

**Note 9.****                     ****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 July 2014 with annual renewaloptions thereafter.  The agreement isaccounted for as an operating lease.  Theexpenses under this agreement totaled approximately $2.1** **millionand $2.1** **million for the three monthsended June** **30,****2010and 2009, respectively, and approximately $4.3** **millionand $4.2** **million for the six months endedJune** **30,****2010and 2009, respectively.

 

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 $21,900 and $15,000 for the three months endedJune 30, 2010 and 2009, respectively, and approximately $43,700 and$36,500 for the six months ended June 30, 2010 and 2009,respectively.  These charges wererecorded in selling, general and administrative expenses in the accompanyingconsolidated statements of income.  Theagreement is for an indefinite term, and either party may terminate its receiptof some or all of the services thereunder upon 180 days’ notice at any timeafter January 1, 2009.  As ofJune 30, 2010, no such notice of termination was given by either party.

 

20

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 9.****                     ****Related Party Transactions (continued)**

 

Pursuantto the Partnership’s Amended and Restated Services Agreement with AllianceEnergy LLC (“Alliance”), the Partnership also provides certainadministrative, accounting and information processing services, and the use ofcertain facilities, to Alliance, an affiliate of the Partnership that is whollyowned by AE Holdings Corp., which is approximately 95% owned by members ofthe Slifka family.  The income from theseservices was approximately $49,000 and $78,800 for the three months endedJune 30, 2010 and 2009, respectively, and $98,000 and $191,000 for the sixmonths ended June 30, 2010 and 2009, respectively.  These fees were recorded as an offset toselling, general and administrative expenses in the accompanying consolidatedstatements of income.  The agreementextends through January 1, 2011.

 

OnMay 12, 2010, the Partnership and Alliance entered into a letter agreementwith respect to shared services for the year ending December 31, 2010,pursuant to which the Partnership will provide information technologyinfrastructure to Alliance for $106,000 for the year in addition to productionand project support and routine information technology maintenance at a rate of$100.00 an hour.  Also for the yearending December 31, 2010, the Partnership will provide limited legalservices to Alliance for $75,000 and limited accounting, treasury, tax andhuman resources support for $15,000.  Theincome from these services was approximately $35,000 for the three months endedJune 30, 2010.

 

ThePartnership sells refined petroleum products to Alliance at prevailing marketprices at the time of delivery.  Sales toAlliance were approximately $6.2 million and $3.9 million for thethree months ended June 30, 2010 and 2009, respectively, and$13.5 million and $6.6 million for the six months ended June 30,2010 and 2009, respectively.

 

TheGeneral Partner employs substantially all of the Partnership’s employees andcharges the Partnership for their services. The expenses for the three months ended June 30, 2010 and 2009,including payroll, payroll taxes and bonus accruals, were $9.4 million and$7.6 million, respectively, and $19.8 million and $19.9 millionfor the six months ended June 30, 2010 and 2009, respectively.  The Partnership also reimburses the GeneralPartner for its contributions under the General Partner’s 401(k) Savingsand Profit Sharing Plan and the General Partner’s qualified and non-qualifiedpension plans.

 

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

 

| ** **                               | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **2010**          | ** ** | **2009**              | ** ** |
| Receivables from Alliance                |       | $                 | 674        |                  | $          | 838 |   |
| Receivables from GPC                     |       | 121               |       | 251                   |       |
| Receivables from the General Partner (1) |       | 2,444             |       | 476                   |       |
| Total                                    |       | $                 | 3,239      |                  | $          | 1,565 |   |

 

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

 

**Note 10.****              ****Cash Distributions**

 

ThePartnership intends to consider regular cash distributions to unitholders on aquarterly basis, although there is no assurance as to the future cashdistributions since they are dependent upon future earnings, capitalrequirements, financial condition and other factors.  The Credit Agreement prohibits thePartnership from making cash distributions if any potential default or Event ofDefault, as defined in the Credit Agreement, occurs or would result from thecash distribution.

 

21

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 10.****              ****Cash Distributions (continued)**

 

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 on the date ofdetermination of available cash for the quarter; less the amount of cash reservesestablished by the General Partner to provide for the proper conduct of thePartnership’s business, to comply with applicable law, any of the Partnership’sdebt instruments, or other agreements or to provide funds for distributions tounitholders and the General Partner for any one or more of the next fourquarters.

 

ThePartnership will make distributions of available cash from distributable cashflow for any quarter during the subordination period as defined in itspartnership agreement in the following manner: firstly, 98.66% to the commonunitholders, pro rata, and 1.34% to the General Partner, until the Partnershipdistributes for each outstanding common unit an amount equal to the minimumquarterly distribution for that quarter; secondly, 98.66% to the commonunitholders, pro rata, and 1.34% to the General Partner, until the Partnershipdistributes for each outstanding common unit an amount equal to any arrearagesin payment of the minimum quarterly distribution on the common units for anyprior quarters during the subordination period; thirdly, 98.66% to thesubordinated unitholders, pro rata, and 1.34% to the General Partner, until thePartnership distributes for each subordinated unit an amount equal to theminimum quarterly distribution for that quarter; and thereafter, cash in excessof the minimum quarterly distributions is distributed to the unitholders andthe General Partner, as the holder of the IDRs, based on the percentages asprovided below.

 

Asthe holder of the IDRs, the General Partner is entitled to incentivedistributions if the amount that the Partnership distributes with respect toany quarter exceeds specified target levels shown below:

 
|                           | ** ** | **Total Quarterly Distribution** | ** ** | **Marginal Percentage Interest in  Distributions** | ** ** |
|--------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------------------|------------|
|                           | ** ** | **Target Amount**                     | ** ** | **Unitholders**                                                   | ** ** | **General Partner** | ** ** |
| Minimum Quarterly Distribution |       | $0.4625                                    |       | 98.66                                                             | %          |   | 1.34 | % |   |
| First Target Distribution      |       | $0.4625                                    |       | 98.66                                                             | %          |   | 1.34 | % |   |
| Second Target Distribution     |       | above $0.4625 up to $0.5375                |       | 85.66                                                             | %          |   | 14.34 | % |   |
| Third Target Distribution      |       | above $0.5375 up to $0.6625                |       | 75.66                                                             | %          |   | 24.34 | % |   |
| Thereafter                     |       | above $0.6625                              |       | 50.66                                                             | %          |   | 49.34 | % |   |

 

ThePartnership paid the following cash distribution during 2010 (in thousands,except per unit data):

 
| **Cash  Distribution  Payment Date** | ** ** | **Per Unit  Cash  Distribution** | ** ** | **Common  Units** | ** ** | **Subordinated  Units** | ** ** | **General  Partner** | ** ** | **Incentive  Distribution** | ** ** | **Total Cash  Distribution** | ** ** |
|-------------------------------------------|------------|---------------------------------------|------------|-------------------|------------|-------------------------|------------|----------------------|------------|-----------------------------|------------|-----------------------------------|------------|
|                                      |       |                                  |       |              |       |                    |       |                 |       |                        |       |                              |       |
| 02/12/10 (1)(2)                           |       | $                                     | 0.4875     |              | $          | 3,621                   |       | $                    | 2,751      |                        | $          | 112                               |       | $ | 50 |   | $ | 6,534 |   |
| 05/14/10 (2)                              |       | $                                     | 0.4875     |              | $          | 5,527                   |       | $                    | 2,751      |                        | $          | 112                               |       | $ | 65 |   | $ | 8,455 |   |

 

(1)          Prior to thePartnership’s public offering (see Note 16), the limited partner interestwas 98.27% and the general partner interest was 1.73%.

(2)          Thisdistribution of $0.4875 per unit resulted in the Partnership reaching itssecond target distribution for the fourth quarter of 2009 and the first quarterof 2010.  As a result, the GeneralPartner, as the holder of the IDRs, received an additional incentivedistribution.

 

Inaddition, on July 21, 2010, the board of directors of the General Partnerdeclared a quarterly cash distribution of $0.4875 per unit for the period fromApril 1, 2010 through June 30, 2010 ($1.95 per unit on an annualizedbasis).  On August 13, 2010, thePartnership will pay this cash distribution to its common and subordinated unitholdersof record as of the close of business August 4, 2010.  This distribution will result in thePartnership reaching its second target distribution for the quarter endedJune 30, 2010.

 

22

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 11.****              ****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, 2009.

 

Inthe Wholesale segment, the Partnership sells gasoline, home heating oil,diesel, kerosene and residual oil to unbranded retail gasoline stations and otherresellers of transportation fuels, home heating oil retailers and wholesaledistributors.  Generally, customers usetheir own vehicles or contract carriers to take delivery of the product at bulkterminals and inland storage facilities that the Partnership owns or controlsor 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 through bunkeringactivity.  Commercial segment customersinclude federal and state agencies, municipalities, large industrial companies,many autonomous authorities such as transportation authorities and waterresource authorities, colleges and universities and a limited group of smallutilities.  Unlike the Wholesale segment,in the Commercial segment, the Partnership generally arranges the delivery ofthe product 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.

 

23

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 11.****              ****Segment Reporting (continued)**

 

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

 
|                                        | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
|                                        | ** ** | **June 30,**       | ** ** | **June 30,**     | ** ** |
|                                        | ** ** | **2010**                | ** ** | **2009**              | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Wholesale Segment:**                      |       |                    |       |                  |       |   |   |   |   |
| Sales                                       |       |                    |       |                  |       |   |   |   |   |
| Distillates                                 |       | $                       | 442,595    |                  | $          | 405,060 |   | $ | 1,401,852 |   | $ | 1,411,676 |   |
| Gasoline                                    |       | 987,806                 |       | 720,330               |       | 1,862,493 |   | 1,221,989 |   |
| Residual oil                                |       | 8,268                   |       | 5,853                 |       | 20,397 |   | 17,343 |   |
| Total                                       |       | $                       | 1,438,669  |                  | $          | 1,131,243 |   | $ | 3,284,742 |   | $ | 2,651,008 |   |
| Net product margin (1)                      |       |                    |       |                  |       |   |   |   |   |
| Distillates                                 |       | $                       | 6,460      |                  | $          | 13,477 |   | $ | 40,480 |   | $ | 47,330 |   |
| Gasoline                                    |       | 23,210                  |       | 12,127                |       | 31,921 |   | 23,913 |   |
| Residual oil                                |       | 2,434                   |       | 2,294                 |       | 5,290 |   | 5,114 |   |
| Total                                       |       | $                       | 32,104     |                  | $          | 27,898 |   | $ | 77,691 |   | $ | 76,357 |   |
| **Commercial Segment:**                     |       |                    |       |                  |       |   |   |   |   |
| Sales                                       |       | $                       | 96,032     |                  | $          | 69,906 |   | $ | 214,704 |   | $ | 183,096 |   |
| Net product margin (1)                      |       | $                       | 2,804      |                  | $          | 2,596 |   | $ | 7,722 |   | $ | 7,524 |   |
| **Combined sales and net product  margin:** |       |                    |       |                  |       |   |   |   |   |
| Sales                                       |       | $                       | 1,534,701  |                  | $          | 1,201,149 |   | $ | 3,499,446 |   | $ | 2,834,104 |   |
| Net product margin (1)                      |       | $                       | 34,908     |                  | $          | 30,494 |   | $ | 85,413 |   | $ | 83,881 |   |
| Depreciation allocated to cost of sales     |       | 2,947                   |       | 2,705                 |       | 5,684 |   | 5,378 |   |
| **Combined gross profit**                   |       | $                       | 31,961     |                  | $          | 27,789 |   | $ | 79,729 |   | $ | 78,503 |   |

 

----

(1)             Net product margin is a non-GAAP financial measure usedby management and external users of the Partnership’s consolidated financialstatements to assess the Partnership’s business.  The table above reconciles net product marginon a combined basis to gross profit, a directly comparable GAAP measure.

 

A reconciliation of the totals reported for thereportable segments to the applicable line items in the consolidated financialstatements is as follows (in thousands):

 
|                                                                    | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
|                                                                    | ** ** | **June 30,**       | ** ** | **June 30,**     | ** ** |
|                                                                    | ** ** | **2010**                | ** ** | **2009**              | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Combined gross profit**                                               |       | $                       | 31,961     |                  | $          | 27,789 |   | $ | 79,729 |   | $ | 78,503 |   |
| **Operating  costs and expenses not allocated to reportable segments:** |       |                    |       |                  |       |   |   |   |   |
| Selling, general and administrative expenses                            |       | 13,891                  |       | 13,299                |       | 30,469 |   | 31,374 |   |
| Operating expenses                                                      |       | 9,803                   |       | 9,137                 |       | 18,462 |   | 17,612 |   |
| Amortization expenses                                                   |       | 734                     |       | 803                   |       | 1,425 |   | 1,603 |   |
| **Total operating costs and  expenses**                                 |       | 24,428                  |       | 23,239                |       | 50,356 |   | 50,589 |   |
| Operating income                                                        |       | 7,533                   |       | 4,550                 |       | 29,373 |   | 27,914 |   |
| Interest expense                                                        |       | (4,374                  | )          | (3,422                | )          | (8,438 | ) | (7,198 | ) |
| Income tax expense                                                      |       | —                  |       | (150                  | )          | (387 | ) | (875 | ) |
| **Net income**                                                          |       | $                       | 3,159      |                  | $          | 978 | ) | $ | 20,548 |   | $ | 19,841 |   |

 

Therewere no foreign sales for the three and six months ended June 30, 2010 and2009.  The Partnership has no foreignassets.

 

24

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 12.****              ****Acquisition**

 

On June 2, 2010, thePartnership completed its acquisition of three refined petroleum productsterminals located in Newburgh, New York from Warex Terminals Corporation (the “WarexTerminals”) for $46.0 millionplus the assumption of certain environmental liabilities (see Note 13).  Inaddition, the Partnership purchased approximately $9.0 million of inventory in the normal course of business thatwas stored in the acquired terminals. The Partnership incurred acquisition expenses of approximately $0.9 million and $1.9 million for the three and six months ended June 30,2010, respectively.  The Partnership financed the acquisition through itsacquisition facility.  This acquisitionhas been accounted for as a business combination.

 

Theallocation of the purchase price will be finalized as the Partnership receivesadditional information relevant to the acquisition, including a final valuationof the assets purchased and further information with respect to theenvironmental liabilities assumed.  Thefinal allocation for this acquisition may be different from the preliminaryestimates presented below.  The impact ofany adjustments to the final allocation is not expected to be material to thePartnership’s results for the year ending December 31, 2010.  The following table presents the preliminaryallocation of the purchase price to the estimated fair value of the assets acquiredand environmental liabilities assumed (in thousands):

 
| Assets purchased:                                       |   |   |   |
|---------------------------------------------------------|--------|--------|--------|
| Buildings, docks, terminal facilities and  improvements |   | $      | 34,887 |   |
| Land                                                    |   | 4,500  |   |
| Fixtures, equipment and automobiles                     |   | 525    |   |
| Intangibles                                             |   | 7,634  |   |
| Total assets purchased                                  |   | 47,546 |   |
| Less environmental  liabilities assumed                 |   | (1,500 | )      |
| Total purchase price                                    |   | $      | 46,046 |   |

 

Theintangible assets acquired in the transaction consist of the following (inthousands):

 
| **Description**         | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangible  Assets** | ** ** | **Amortization  Period** | ** ** |
|-------------------------|------------|-----------------------------|------------|-------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Customer relationships  |       | $                           | 6,524      |                          | $          | (36                         | )          | $                        | 6,488      |   | 15 years |   |
| Supply agreements       |       | 1,110                       |       | (6                            | )          | 1,104                       |       | 15 years                 |       |
| Total intangible assets |       | $                           | 7,634      |                          | $          | (42                         | )          | $                        | 7,592      |   |   |   |

 

**Note 13.****              ****Environmental Liabilities**

 

ThePartnership currently owns or leases properties where refined petroleumproducts are being or have been handled. These properties and the refined petroleum products handled thereon maybe subject to federal and state environmental laws and regulations.  Under such laws and regulations, thePartnership could be required to remove or remediate containerized hazardousliquids or associated generated wastes (including wastes disposed of orabandoned by prior owners or operators), to clean up contaminated propertyarising from the release of liquids or wastes into the environment, includingcontaminated groundwater, or to implement best management practices to preventfuture contamination.

 

25

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 13.****              ****Environmental Liabilities (continued)**

 

ThePartnership maintains insurance of various types with varying levels ofcoverage that it considers adequate under the circumstances to cover itsoperations and properties.  The insurancepolicies are subject to deductibles that the Partnership considers reasonableand not excessive.  In addition, thePartnership has entered into indemnification agreements with various sellers inconjunction with several of its acquisitions. Allocation of environmental liability is an issue negotiated inconnection with each of the Partnership’s acquisition transactions.  In each case, the Partnership makes anassessment of potential environmental liability exposure based on availableinformation.  Based on that assessmentand relevant economic and risk factors, the Partnership determines whether to,and the extent to which it will, assume liability for existing environmentalconditions.

 

Inconnection with the June 2010 acquisitionof the Warex Terminals, the Partnership assumed certain environmentalliabilities, including certain ongoing remediation efforts.  As a result, the Partnershiprecorded, on an undiscounted basis, total environmental liabilities ofapproximately $1.5 million, which were recorded as a long-term liabilityin the accompanying consolidated balance sheet at June 30, 2010.  The Partnership does not believe thatcompletion of the ongoing remediation efforts will result in material costs inexcess of the environmental reserve or have a material impact on itsoperations.

 

In connection with the November 2007 acquisition of ExxonMobil’sGlenwood Landing and Inwood, New York terminals, the Partnership assumedcertain environmental liabilities, including the remediation obligations underremedial action plans submitted by ExxonMobil to and approved by the New YorkDepartment of Environmental Conservation (“NYDEC”) with respect to bothterminals.  As a result, the Partnershiprecorded, on an undiscounted basis, total environmental liabilities ofapproximately $1.2 million, of which approximately $0.7 million waspaid by the Partnership as of June 30, 2010.  The remaining liability of $0.5 millionwas recorded as a current liability of $0.4 million and a long-termliability of $0.1 million in the accompanying consolidated balance sheetat June 30, 2010.  The Partnershiphas implemented the remedial action plans and does not believe that compliancewith the terms thereof will result in material costs in excess of theenvironmental reserve or have a material impact on its operations.

 

Inconnection with the May 2007 acquisition of ExxonMobil’s Albany andNewburgh, New York and Burlington, Vermont terminals, the Partnership assumedcertain environmental liabilities, including the remediation obligations undera proposed remedial action plan submitted by ExxonMobil to NYDEC with respectto the Albany, New York terminal.  As aresult, the Partnership recorded, on an undiscounted basis, total environmentalliabilities of approximately $8.0** **million.  In June 2008, the Partnership submitteda remedial action work plan to NYDEC, implementing NYDEC’s conditional approvalof the remedial action plan submitted by ExxonMobil.  The Partnership responded to NYDEC’s requestsfor additional information and conducted pilot tests for the remediationoutlined in the work plan.  Based on theresults of such pilot tests, the Partnership changed its estimate and reducedthe environmental liability by $2.8** **millionduring the fourth quarter ended December 31, 2008.  At June 30, 2010, this liability had abalance of $4.9 million which was recorded as a current liability of$2.9 million and a long-term liability of $2.0 million in theaccompanying consolidated balance sheet. In July 2009, NYDEC approved the remedial action work plan, and thePartnership signed a Stipulation Agreement with NYDEC to govern implementationof the approved plan.  The Partnershipdoes not believe that compliance with the terms of the approved remedial actionwork plan will result in material costs in excess of the environmental reserveor have a material impact on its operations.

 

Inconnection with the 2006 acquisition of its Macungie, Pennsylvania terminal(the “Global Macungie Terminal”), the Partnership assumed certain existingenvironmental liabilities at the terminal. The Partnership did not accrue for these contingencies as it believesthat the aggregate amount of these liabilities cannot be reasonably estimatedat this time.  The Partnership alsoexecuted an Administrative Order on Consent (“AOC”) with the U.S. EnvironmentalProtection Agency, Region III (“EPA, Region III”) requiring certaininvestigatory activities at the Global Macungie Terminal.  The Partnership believes that theinvestigatory activities required by the AOC have been completed, and a finalreport concerning these investigatory activities has been submitted.  In accordance with the AOC, the Partnership

 

26

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 13.****              ****Environmental Liabilities (continued)**

 

intendsto request that EPA, Region III issue a Notice of Completion with respect tothe AOC.  Although the Partnership cannotpredict whether EPA, Region III will grant this request, based upon currentinformation, the Partnership does not anticipate that the outcome will have amaterial adverse effect on it. Furthermore, the Partnership does not believe that in the event EPA,Region III requests additional activities before issuing a Notice ofCompletion, those activities will result in material costs or have a materialimpact on the Partnership’s operations.

 

ThePartnership’s estimates used in these reserves are based on all known facts atthe time and its assessment of the ultimate remedial action outcomes.  Among the many uncertainties that impact thePartnership’s estimates are the necessary regulatory approvals for, andpotential modification of, its remediation plans, the amount of data availableupon initial assessment of the impact of soil or water contamination, changesin costs associated with environmental remediation services and equipment andthe possibility of existing legal claims giving rise to additional claims.  Therefore, although the Partnership believesthat these reserves are adequate, no assurances can be made that any costsincurred in excess of these reserves or outside of indemnifications or nototherwise covered by insurance would not have a material adverse effect on thePartnership’s financial condition, results of operations or cash flows.

 

**Note 14.****              ****Long-Term Incentive Plan**

 

InOctober 2005, the General Partner adopted a Long-Term Incentive Plan (“LTIP”)whereby 564,242 common units were authorized for issuance.  Any units delivered pursuant to an awardunder the LTIP may be acquired in the open market or from any affiliate, benewly issued units or any combination of the foregoing.  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”).

 

*Long-Term Incentive Plan*

 

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 grantedvested on December 31, 2009 and became payable on a one-for-one basis incommon units of the Partnership (or cash equivalent) in connection with theachievement of certain performance goals over the vesting period.  The DERs that were granted in tandem with thephantom units vested and became payable in cash simultaneously with the vestingof the phantom units.

 

ThePartnership recorded compensation expenses with respect to these awards ofapproximately $0.2 million and $0.4 million for the three and sixmonths ended June 30, 2009, respectively, which are included in selling,general and administrative expenses in the accompanying consolidated statementsof income.  The total compensation costrelated to these awards was fully recognized as of December 31, 2009.  In March 2010, the Partnershipdistributed 62,620 common units in settlement of this award, and inApril 2010, the Partnership paid approximately $305,000 in associatedDERs.

 

*Three-Year Phantom Units*

 

OnDecember 31, 2008, the Compensation Committee of the board of directors ofthe General Partner granted 99,700 phantom units to a named executiveofficer, including a contingent right to receive an amount in cash equal to thenumber of phantom units multiplied by the cash distribution per common unit madeby the Partnership from time to time during the period the phantom units areoutstanding.  The phantom units, whichare subject to graded vesting, vest in six equal installments on June 30and December 31 of each year commencing June 30, 2009.  Compensation expense related to these phantomunits is recognized using the accelerated attribution method.  The Partnership recorded

 

27

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 14.****              ****Long-Term Incentive Plan (continued)**

 

compensationexpenses related to this phantom unit award of approximately $89,000 and$230,000 for the three months ended June 30, 2010 and 2009, respectively,and $178,000 and $460,000 for the six months ended June 30, 2010 and 2009,respectively, which are included in selling, general and administrativeexpenses in the accompanying consolidated statements of income.  The total compensation cost related to thenon-vested awards not yet recognized at June 30, 2010 is approximately$216,000 and is expected to be recognized over the remaining requisite serviceperiod.  On June 30, 2009, 16,617common units vested under this award and were distributed to the namedexecutive officer, and in July 2009, the Partnership paid a cashdistribution related to these units of approximately $8,000.  On December 31, 2009, 16,617 commonunits vested under this award and were distributed, and in January 2010,the Partnership paid a cash distribution related to these units ofapproximately $32,000.  On June 30,2010, 16,617 common units vested under this award, and in July 2010, thePartnership distributed these units and paid a cash distribution related tothese units of approximately $48,600.

 

*Five-Year Phantom Units*

 

OnFebruary 5, 2009, the Compensation Committee of the board of directors ofthe General Partner granted awards of 277,777 phantom units under the LTIP tocertain employees of the General Partner. The phantom units will vest and become payable on a one-for-one basis incommon units of the Partnership (and/or cash in lieu thereof) onDecember 31, 2013 (or potentially sooner as described below), subject ineach case to continued employment of the respective employee and subject to aperformance goal for the phantom units granted to one of the recipients.  Any phantom units that have not vested as ofthe end of the five year cliff vesting period will be forfeited.

 

Allor a portion of the phantom units granted to the employees may vest earlierthan December 31, 2013 if the Average Unit Price (as defined below) equalsor exceeds specified target prices during specified periods.  Specifically, if the Average Unit Priceequals or exceeds: (i) $21.00 at any time prior to December 31, 2013,then 25% of the phantom units will automatically vest; (ii) $27.00 at anytime during the period from February 5, 2011 through December 31,2013, then an additional 25% of the phantom units will automatically vest; and(iii) $34.00 at any time during the period from June 5, 2012 throughDecember 31, 2013, then all of the remaining phantom units willautomatically vest. “Average Unit Price” means the closing market price of thePartnership’s common units for any 10-consecutive trading day period.  On August 21, 2009, the Average UnitPrice of $21.00 per unit for the first tranche was achieved and, as a result,25% of the phantom units vested at a price of $22.50 per unit.

 

Thefair value of the award at the February 5, 2009 grant date approximatedthe fair value of the Partnership’s common units at that date, reduced by thepresent value of the distributions stream on the equivalent number of commonunits over the derived service period. Compensation cost is recognized ratably over the derived service periodwhich was determined for each tranche using the Monte Carlo simulationmodel.  The derived service period of theaward was assessed using expected volatility which was estimated based onhistorical volatility of the Partnership’s common units.  The Partnership recorded compensationexpenses related to this phantom unit award of approximately $39,000 and$28,000 for the three months ended June 30, 2010 and 2009, respectively,and $78,000 and $83,000 for the six months ended June 30, 2010 and 2009,respectively, which are included in selling, general and administrativeexpenses in the accompanying consolidated statements of income.  The total compensation cost related to thenon-vested awards not yet recognized at June 30, 2010 is approximately$549,000 and is expected to be recognized ratably over the remaining derivedservice period.

 

*Non-Employee Directors Phantom Units*

 

OnApril 20, 2010, the Compensation Committee of the board of directors ofthe General Partner granted awards of 3,600 phantom units to certainnon-employee directors of the General Partner. The phantom units granted vest on December 31, 2010 and will becomepayable on a one-for-one basis in common units of the Partnership (or cashequivalent).  The fair value of thisaward at the April 20, 2010 grant date approximated the fair value of thePartnership’s common units at that date.

 

28

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 14.****              ****Long-Term Incentive Plan (continued)**

 

ThePartnership will recognize as compensation expense the value of the portion ofthe award that is ultimately expected to vest over the requisite service periodon a straight-line basis.  Compensationexpense related to this award was immaterial for the three months endedJune 30, 2010.  The totalcompensation cost related to the non-vested awards not yet recognized atJune 30, 2010 is approximately $82,000 and is expected to be recognizedratably over the remaining requisite service period.

 

*Repurchase Program*

 

InMay 2009, the board of directors of the General Partner authorized therepurchase of the Partnership’s common units (the “Repurchase Program”) for thepurpose of assisting it in meeting the General Partner’s anticipatedobligations to deliver common units under the LTIP and meeting the GeneralPartner’s obligations under existing employment agreements and other employmentrelated obligations of the General Partner (collectively, the “General Partner’sObligations”).  The Partnership isauthorized to spend up to $6.6 million to acquire up to 445,000 of itscommon units in the aggregate, over an extended period of time, consistent withthe General Partner’s Obligations. Common units of the Partnership may be repurchased from time to time inopen market transactions, including block purchases, or in privately negotiatedtransactions.  Such authorized unitrepurchases may be modified, suspended or terminated at any time, and aresubject to price, economic and market conditions, applicable legal requirementsand available liquidity.  ThroughJune 30, 2010, the General Partner repurchased 195,291 common unitspursuant to the Repurchase Program for approximately $4.0 million, ofwhich 62,620 phantom units vested under the *“Long-Term Incentive Plan,”*49,851 phantom units vested under the *“Three-Year Phantom Units”*award and 69,444 phantom units vested under the “*Five-YearPhantom Units”*award.

 

AtJune 30, 2010 and December 31, 2009, common units outstandingexcluded 46,827 and 47,143 common units, respectively, held on behalf of thePartnership pursuant to its Repurchase Program and for future satisfaction ofthe General Partner’s Obligations.

 

*Status of Non-Vested Units*

 

Thefollowing table presents a summary of the status of the non-vested units as ofJune 30, 2010:

 
| ** **                                            | ** ** | **Number  of  Non-vested  Units** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------------------|------------|
| Outstanding non-vested units at January 1,  2010 |       | 337,419                           |       | $                                             | 6.05       |   |
| Granted                                               |       | 3,600                             |       | 22.80                                         |       |
| Vested                                                |       | (16,617                           | )          | 11.30                                         |       |
| Forfeited                                             |       | —                            |       | —                                        |       |
| Outstanding non-vested units at June 30, 2010    |       | 324,402                           |       | $                                             | 5.96       |   |

 

**Note 15.****              ****Fair Value Measurements**

 

Certainof the Partnership’s assets and liabilities are measured at fair value.  Fair value is defined as the price that wouldbe received to sell an asset or paid to transfer a liability in the principalor most advantageous market for the asset or liability in an orderlytransaction between market participants at the measurement date.

 

29

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 15.****             ****Fair ValueMeasurements (continued)**

 

TheFinancial Accounting Standards Board (“FASB”) established a fair valuehierarchy, which prioritizes the inputs used in measuring fair value into thefollowing 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.                                                                                                                                                                                                                                                    |

 

Thefollowing table presents those financial assets and financial liabilitiesmeasured at fair value on a recurring basis as of June 30, 2010 (inthousands):

 
| ** **                                   | ** ** | **Fair Value as of June 30, 2010** | ** ** | **Fair Value as of December 31, 2009** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **Total**                                                        | ** ** | **Level 1**                                                     | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Assets:**                                  |       |                                                             |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Hedged inventories                           |       | $                                                                | 435,631    |                                                                 | $          | — |   | $ | 435,631 |   | $ | — |   | $ | 472,533 |   | $ | — |   | $ | 472,533 |   | $ | — |   |
| Fair value of forward fixed price contracts  |       | 8,195                                                            |       | —                                                               |       | 8,195 |   | — |   | 3,089 |   | — |   | 3,089 |   | — |   |
| Swap agreements and options                  |       | 2,756                                                            |       | 84                                                                   |       | 2,672 |   | — |   | 3,009 |   | 2,966 |   | 43 |   | — |   |
| Forward starting swap                        |       | —                                                           |       | —                                                               |       | — |   | — |   | 80 |   | — |   | 80 |   | — |   |
| Total assets                                 |       | $                                                                | 446,582    |                                                                 | $          | 84 |   | $ | 446,498 |   | $ | — |   | $ | 478,711 |   | $ | 2,966 |   | $ | 475,745 |   | $ | — |   |
|                                         |       |                                                             |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities:**                             |       |                                                             |       |                                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Obligations on forward fixed price contracts |       | $                                                                | (9,562     | )                                                                    | $          | — |   | $ | (9,562 | ) | $ | — |   | $ | (21,114 | ) | $ | — |   | $ | (21,114 | ) | $ | — |   |
| Swap agreements and option contracts         |       | (345                                                             | )          | —                                                               |       | (345 | ) | — |   | (3,669 | ) | (118 | ) | (3,551 | ) | — |   |
| Interest rate collars                        |       | (14,077                                                          | )          | —                                                               |       | (14,077 | ) | — |   | (7,047 | ) | — |   | (7,047 | ) | — |   |
| Total liabilities                            |       | $                                                                | (23,984    | )                                                                    | $          | — |   | $ | (23,984 | ) | $ | — |   | $ | (31,830 | ) | $ | (118 | ) | $ | (31,712 | ) | $ | — |   |

 

Themajority of the Partnership’s derivatives outstanding are reported at fairvalue based market quotes that are deemed to be observable inputs in an activemarket for similar assets and liabilities and are considered Level 2inputs for purposes of fair value disclosures. Specifically, the fair values of the Partnership’s financial assets andfinancial liabilities provided above were derived from NYMEX and New YorkHarbor quotes for the Partnership’s hedged inventories, forward fixed pricecontracts, swap agreements and option contracts and from the LIBOR rates forthe Partnership’s interest rate collars and forward starting swap.  The Partnership has not changed its valuationtechniques or inputs during the three and six month periods ended June 30,2010.

 

Forassets and liabilities measured on a non-recurring basis during the period,accounting guidance requires quantitative disclosures about the fair valuemeasurements separately for each major category.  During the quarter ended June 30, 2010,the Partnership did not remeasure assets or liabilities at fair value on anon-recurring basis.

 

*Financial Instruments*

 

Thefair value of the Partnership’s financial instruments approximated the carryingvalue as of June 30, 2010 and December 31, 2009, in each case due tothe short-term and the variable interest rate nature of the financialinstruments.

 

30

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 16.****             ****Unitholders’Equity**

 

OnMarch 16, 2010, the Partnership entered into an Underwriting Agreement(the “Underwriting Agreement”) relating to the public offering of 3,400,000common units representing limited partner interests in the Partnership, at apublic offering price of $22.75, less underwriting discounts and commissions of$1.00 per common unit.  Pursuant to theUnderwriting Agreement, the Partnership also granted the underwriters an optionto purchase an additional 510,000 common units from the Partnership at the sameprice, which option was exercised.  On March 19,2010, the Partnership completed the public offering of 3,910,000 common unitsfor approximately $89.0 million.  The net proceeds from theoffering of $84.6 million, after deducting approximately $4.4 million in underwriting fees and offering expenses, wereused to reduce indebtedness under the Credit Agreement.

 

**Note 17.****             ****IncomeTaxes**

 

Thefollowing table presents a reconciliation of the difference between thestatutory federal income tax rate and the effective income tax rate for theperiods presented:

 
| ** **                                        | ** ** | **Three  Months Ended  June 30,** | ** ** | **Six  Months Ended  June 30,** |
|---------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|
| ** **                                        | ** ** | **2010**                               | ** ** | ** **                           | **2009** | ** ** | ** ** | **2010** | ** ** | ** ** | **2009** | ** ** |
| Federal statutory income tax rate                 |       | 34.0                                   | %          |                                 | 34.0 | % |   | 34.0 | % |   | 34.0 | % |
| State income tax rate, net of federal tax benefit |       | 6.4                                    | %          |                                 | 6.4 | % |   | 6.4 | % |   | 6.4 | % |
| Partnership income not subject to tax             |       | (40.4                                  | )%         |                                 | (27.1 | )% |   | (38.6 | )% |   | (36.2 | )% |
| Effective income tax rate                         |       | —                                 | %          |                                 | 13.3 | % |   | 1.8 | % |   | 4.2 | % |

 

**Note 18.****             ****LegalProceedings**

 

***General***

 

Althoughthe Partnership may, from time to time, be involved in litigation and claimsarising out of its operations in the normal course of business, the Partnershipdoes not believe that it is a party to any litigation that will have a materialadverse impact on its financial condition or results of operations.  Except as described below and in Note 13included herein, the Partnership is not aware of any significant legal orgovernmental proceedings against it, or contemplated to be brought againstit.  The Partnership maintains insurancepolicies with insurers in amounts and with coverage and deductibles as theGeneral Partner believes are reasonable and prudent.  However, the Partnership can provide noassurance that this insurance will be adequate to protect it from all materialexpenses related to potential future claims or that these levels of insurancewill be available in the future at economically acceptable prices.

 

***Other***

 

Certainof the Partnership’s employees at its terminal in Oyster Bay (Commander), NewYork were employed under a collective bargaining agreement that expired in April 2010.  The Partnership is in the process ofnegotiating a new collective bargaining agreement with a newly-elected unionrepresenting these employees and does not believe the results of thesenegotiations will have a material adverse effect on its operations.

 

Certainof the Partnership’s employees at its terminals in Albany and Newburgh, NewYork acquired from ExxonMobil in 2007 are employed under a collectivebargaining agreement that expired in May, 2010. The Partnership is in the process of negotiating a new collectivebargaining agreement with the incumbent union and does not believe the resultsof these negotiations will have a material adverse effect on its operations.

 

31

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 19.****             ****NewAccounting Standard**

 

InJanuary 2010, guidance issued by the FASB related to fair valuemeasurements and disclosure was updated to require additional disclosuresrelated to transfers in and out of Level 1 and Level 2 fair valuemeasurements and enhanced detail in the Level 3 reconciliation.  This guidance clarifies the level ofdisaggregation required for assets and liabilities and the disclosures requiredfor inputs and valuation techniques used to measure the fair value of assetsand liabilities that fall in either Level 2 or Level 3.  The updated guidance was effective for thePartnership on January 1, 2010, with the exception of the Level 3disaggregation which is effective for the Partnership on January 1,2011.  The adoption had no impact on thePartnership’s consolidated financial statements.  See Note 15 for details regarding thePartnership’s assets and liabilities measured at fair value.

 

**Note 20.****             ****SubsequentEvents**

 

ThePartnership evaluated all events or transactions that occurred through the datethe Partnership issued its financial statements.  Except as described below, no materialsubsequent events have occurred since June 30, 2010 that requiredrecognition or disclosure in the accompanying financial statements.

 

OnJuly 21, 2010, the board of directors of the General Partner declared a quarterlycash distribution of $0.4875 per unit ($1.95 per unit on an annualized basis)for the period from April 1, 2010 through June 30, 2010.  On August 13, 2010, the Partnership willpay this cash distribution to its common and subordinated unitholders of recordas of the close of business August 4, 2010.

 

OnMay 24, 2010, Global Companies LLC (“Global”), a wholly ownedsubsidiary of the Partnership, entered into a Sale and Purchase Agreement (the “PurchaseAgreement”) with ExxonMobil Oil Corporation and Exxon Mobil Corporation(collectively, “ExxonMobil Corporation”), pursuant to which Global agreed toacquire 190 Mobil branded retail gas stations in Massachusetts, Rhode Islandand New Hampshire (the “Subject States”) for a purchase price of$200.0 million.  In connection withthe transaction, the Partnership will assume certain environmentalliabilities.  In addition, ExxonMobilCorporation has agreed to assign to Global the right to supply Mobil brandedfuel to such stations and to 31 Mobil branded stations that are owned andoperated by independent dealers in the Subject States.  The Partnership will also enter into along-term Brand Fee Agreement, which will entitle the Partnership to sell Mobilbranded gasoline and diesel fuel in the Subject States, as well as Maine andVermont.

 

Globalhas deposited approximately $4.8 million in an escrow account.  In August 2010, upon the completion ofthe due diligence period, Global will be required to make an additional depositof $6.0 million.  Global is onlyentitled to the return of the deposits under limited circumstances.

 

Ofthe 221 stations that are the subject of the Purchase Agreement, 179 arelocated in Massachusetts, 22 are located in Rhode Island and 20 are located inNew Hampshire.  Of the 190 stations thatare the subject of the Purchase Agreement, 42 are directly operated byExxonMobil Corporation and 148 are dealer operated subject to existingfranchise agreements to be assigned to and assumed by Global.  Global is required to make (or to cause itsmanagement company to make) offers of employment to certain ExxonMobilCorporation employees impacted by the sale of these stations.

 

Subjectto approval of its independent directors, the Partnership intends to negotiatea contract for the management of the company operated stations and the dealerrelationships with Alliance.  Alliance isan experienced operator of retail gasoline stations.  Alliance is approximately 95% owned by membersof the Slifka family, who also own the general partner of the Partnership.

 

32

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

 

**Note 20.****             ****SubsequentEvents (continued)**

 

ExxonMobilCorporation has long-term throughput contracts with Global for the use of fiverefined products terminals acquired from ExxonMobil Corporation in 2007.  Global supplies refined products toExxonMobil Corporation at each of these terminals.  ExxonMobil is also a supplier of refinedproducts to the Partnership at other locations.

 

Thetransaction is subject to various customary commercial closing conditions andis expected to be completed by late in the third quarter or early fourthquarter of 2010.  The Partnershipcurrently expects to finance the purchase of the assets with borrowings underits revolving credit agreement with its bank group and/or by accessing thecapital markets.

 

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**Item 2.       Management’s Discussion and Analysis of Financial Conditionand Results of Operations**

 

Thefollowing discussion and analysis of financial condition and results ofoperations of Global Partners LP should be read in conjunction with thehistorical consolidated financial statements of Global Partners LP and thenotes thereto included elsewhere in this Quarterly Report on Form 10-Q.

 

**Forward-LookingStatements**

 

Someof the information contained in or incorporated by reference in this QuarterlyReport on Form 10-Q may contain forward-looking statements.  Forward-looking statements do not relatestrictly to historical or current facts and include, without limitation, anystatement that may project, indicate or imply future results, events,performance or achievements, and may contain the words “may,” “believe,” “should,”“could,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “foresee,” “continue,”“will likely result,” or other similar expressions.  In addition, any statement made by ourmanagement concerning future financial performance (including future revenues,earnings or growth rates), ongoing business strategies or prospects, andpossible actions by our partnership or its subsidiaries are alsoforward-looking statements. Forward-looking statements are not guarantees of performance.  Although we believe these forward-lookingstatements are based on reasonable assumptions, statements made regardingfuture results are subject to a number of assumptions, uncertainties and risks,many of which are beyond our control, which may cause future results to bematerially different from the results stated or implied in this document.  These risks and uncertainties include, amongother things:

 

·              We may not have sufficient cash from operations toenable us to pay the minimum quarterly distribution or maintain distributionsat current levels following establishment of cash reserves and payment of feesand expenses, including payments to our general partner.

 

·              A significant decrease in demand for refinedpetroleum products in the areas served by our storage facilities would reduceour ability to make distributions to our unitholders.

 

·              Our sales of home heating oil and residual oil couldbe significantly reduced by conversions to natural gas which conversions couldhave an adverse effect on our financial condition, results of operations andcash available for distribution to our unitholders.

 

·              Warmer weather conditions could adversely affect ourfinancial condition, results of operations and cash available for distributionto our unitholders.

 

·              Our risk management policies cannot eliminate allcommodity risk.  In addition, anynoncompliance with our risk management policies could result in significantfinancial losses.

 

·              Our results of operations are influenced by theoverall forward market for refined petroleum products, and increases and/ordecreases in the prices of refined petroleum products may adversely impact theamount of borrowing available for working capital under our credit agreement,which credit agreement has borrowing base limitations and advance rates.

 

·              We are exposed to trade credit risk in the ordinarycourse of our business activities.

 

·              We are exposed to risk associated with our tradecredit support in the ordinary course of our business activities.

 

·              The condition of credit markets may adversely affectour liquidity.

 

·              Due to our lack of asset and geographicdiversification, adverse developments in the terminals that we use or in ouroperating areas could reduce our ability to make distributions to ourunitholders.

 

·              We are exposed to performance risk in our supplychain.

 

·              Our general partner and its affiliates haveconflicts of interest and limited fiduciary duties, which may permit them tofavor their own interests to the detriment of unitholders.

 

·              Unitholders have limited voting rights and are notentitled to elect our general partner or its directors or to remove our generalpartner without the consent of the holders of at least 66 2/3% of theoutstanding units (including units held by our general partner and itsaffiliates), which could lower the trading price of our common units.

 

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·              Unitholders may be required to pay taxes on theirshare of our income even if they do not receive any cash distributions from us.

 

Additionalinformation about risks and uncertainties that could cause actual results todiffer materially from forward-looking statements is contained in Part I, Item 1A,“Risk Factors,” in our Annual Report on Form 10-K for the year endedDecember 31, 2009 and Part II, Item 1A, “Risk Factors,” in thisQuarterly Report on Form 10-Q. Developments in any of these areas could cause our results to differmaterially from results that have been or may be anticipated or projected.

 

Allforward-looking statements included in this Form 10-Q and all subsequentwritten or oral forward-looking statements attributable to us or persons actingon our behalf are expressly qualified in their entirety by these cautionarystatements.  The forward-lookingstatements speak only as of the date of this Form 10-Q or, in the case offorward-looking statements, contained in any document incorporated by reference,the date of such document, and we expressly disclaim any obligation orundertaking to update these statements to reflect any change in ourexpectations or beliefs or any change in events, conditions or circumstances onwhich any forward-looking statement is based.

 

**Overview**

 

***General***

 

Weown, control or have access to one of the largest terminal networks of refinedpetroleum products in Massachusetts, Maine, Connecticut, Vermont, NewHampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively,the “Northeast”).  We are one of thelargest wholesale distributors of gasoline, distillates (such as home heatingoil, diesel and kerosene) and residual oil to wholesalers, retailers andcommercial customers in New England and New York.  For the three and six months endedJune 30, 2010, we sold approximately $1.5 billion and$3.5 billion, respectively, of refined petroleum products and smallamounts of natural gas.

 

Wepurchase our refined petroleum products primarily from domestic and foreignrefiners (wholesalers), traders and producers and sell these products in twosegments, Wholesale and Commercial.  Likemost independent marketers of refined petroleum products, we base our pricingon spot physical prices and routinely use the NYMEX or other derivatives tohedge our commodity risk inherent in buying and selling energycommodities.  Through the use ofregulated exchanges or derivatives, we maintain a position that issubstantially balanced between purchased volumes and sales volumes or futuredelivery obligations.  We earn a marginby selling the product for physical delivery to third parties.

 

OnDecember 9, 2009, our general partner entered into the Third Amended andRestated Agreement of Limited Partnership of the Partnership (the “PartnershipAgreement”).  The Partnership Agreementamended the Second Amended and Restated Agreement of Limited Partnership of thePartnership, dated May 9, 2007, as amended, to: (i) replace the terms“operating surplus” and “adjusted operating surplus” with the term “distributablecash flow” and thereby eliminate the term “working capital borrowings” andpermit us to eliminate the clean down requirement in our credit facility,(ii) increase the minimum quarterly distribution, prospectively, from$0.4125 to $0.4625 per unit per quarter; and (iii) remove the provisionsthat previously permitted early conversion of a portion of the subordinatedunits and restate the provisions governing conversion of the subordinated unitsusing distributable cash flow to test whether we have “earned” the minimumquarterly distribution.

 

OnMay 24, 2010, Global Companies LLC (“Global”), a wholly ownedsubsidiary of ours, entered into a Sale and Purchase Agreement (the “PurchaseAgreement”) with ExxonMobil Oil Corporation and Exxon Mobil Corporation(collectively, “ExxonMobil Corporation”), pursuant to which Global agreed toacquire 190 Mobil branded retail gas stations in Massachusetts, Rhode Islandand New Hampshire (the “Subject States”) for a purchase price of$200.0 million.  In connection withthe transaction, we will assume certain environmental liabilities.  In addition, ExxonMobil Corporation hasagreed to assign to Global the right to supply Mobil branded fuel to suchstations and to 31 Mobil branded stations that are owned and operated byindependent dealers in the Subject States. We will also enter into a long-term Brand Fee Agreement, which willentitle us to sell Mobil branded gasoline and diesel fuel in the SubjectStates, as well as Maine and Vermont.  Weexpect to close the acquisition by late in the third quarter or early fourthquarter of 2010.  See Note 20 ofNotes to Consolidated Financial Statements for additional information on thetransaction.

 

35

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***Products and 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 the non-weathersensitive components of our business, such as transportation fuels; however, weare still subject to the impact that warmer weather conditions may have on ourhome heating oil and residual oil sales.

 

Ourbusiness is divided into two segments:

 

·              *Wholesale.*  This segmentincludes sales of gasoline, distillates and residual oil to unbranded retailgasoline stations and other resellers of transportation fuels, home heating oilretailers and wholesale distributors.

 

·              *Commercial.*  This segment includes sales anddeliveries of unbranded gasoline, distillates, residual oil and small amountsof natural gas to customers in the public sector and to large commercial andindustrial customers, primarily either through a competitive bidding process orthrough contracts of various terms.  Thissegment also purchases, custom blends, sells and delivers bunker fuel anddiesel to cruise ships, bulk carriers and fishing fleets generally by barges.

 

Ourbusiness 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 Reporton Form 10-K for the year ended December 31, 2009 for additionalinformation related to commodity risk.

 

***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:

 

·              *The condition of credit markets may adverselyaffect our liquidity. *In the recentpast, world financial markets experienced a severe reduction in theavailability of credit.  Although we werenot negatively impacted by this condition, possible negative impacts in thefuture could include a decrease in the availability of borrowings under ourcredit agreement, increased counterparty credit risk on our derivativescontracts and our contractual counterparties requiring us to provide collateral.  In addition, we could experience a tighteningof trade credit from our suppliers.

 

·              *Wecommit substantial resources to pursuing acquisitions, though there is nocertainty that we will successfully complete any acquisitions or receive theeconomic results we anticipate from completed acquisitions.*  Consistentwith our business strategy, we are continuously engaged in discussions withpotential sellers of terminalling, storage and/or marketing assets and relatedbusinesses.  In an effort to prudentlyand economically leverage our asset base, knowledge base and skill sets,management pursues businesses that are closely related to or significantlyintertwined with our existing lines of business.  Our growth largely depends on our ability tomake accretive acquisitions.  We may beunable to make such accretive acquisitions for a number of reasons, including,but not limited to, the following: (1) we are unable to identify attractive acquisition candidates ornegotiate acceptable purchase contracts; (2) we are unable to raisefinancing for such acquisitions on economically acceptable terms; or (3) weare outbid by competitors.  In addition,we may consummate acquisitions that at the time of consummation we believe willbe accretive, but that ultimately may not be accretive.  If any of these events were to occur, ourfuture growth would be limited.  We cangive no assurance that our acquisition efforts will be successful or that anysuch acquisition will be completed on terms that are favorable to us.

 

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·              *Our financial results are generally better in thefirst and fourth quarters of the calendar year. *Demand for some refinedpetroleum products, specifically home heating oil and residual oil for spaceheating purposes, is generally higher during November through March thanduring April through October.  Weobtain a significant portion of these 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 adversely affect ourresults of operations and financial condition. *Weather conditions generallyhave an impact on the demand for both home heating oil and residual oil.  Because we supply distributors whosecustomers depend on home heating oil and residual oil for space heatingpurposes during the winter, warmer-than-normal temperatures during the firstand fourth calendar quarters in the Northeast can decrease the total volume wesell and the gross profit realized on those sales.

 

·              *Energy efficiency, new technology and alternativefuels could reduce demand for our products.*  Increased conservation and technological advances haveadversely affected the demand for home heating oil and residual oil.  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.

 

·              *Our financial condition and results of operationsare influenced by the overall forward market for refined petroleum products,and increases and/or decreases in the prices of refined petroleum products mayadversely impact the amount of borrowing available for working capital underour credit agreement, which credit agreement has borrowing base limitations andadvance rates*.  Resultsfrom our purchasing, storing, terminalling and selling operations areinfluenced by prices for refined petroleum products, pricing volatility and themarket for such products.  Prices in theoverall forward market for refined petroleum products may impact our ability toexecute advantageous purchasing opportunities. In a contango market (when product prices for future deliveries arehigher than for current deliveries), we may use our storage capacity to improveour margins by storing products we have purchased at lower prices in thecurrent market for delivery to customers at higher prices in the future.  In a backwardated market (when product pricesfor future deliveries are lower than current deliveries), we attempt tominimize our inventories to reduce commodity risk and maintain or increase netproduct margins.  When prices for refinedpetroleum products rise, some of our customers may have insufficient credit topurchase supply from us at their historical purchase volumes, and theircustomers, in turn, may adopt conservation measures which reduce consumption,thereby reducing demand for product. Furthermore, when prices increase rapidly and dramatically, we may beunable to promptly pass our additional costs to our customers, resulting inlower margins for us which could adversely affect our results ofoperation.  Lastly, higher prices forrefined petroleum products may (1) diminish our access to trade creditsupport and/or cause it to become more expensive and (2) decrease theamount of borrowings available for working capital under our credit agreementas a result of total available commitments, borrowing base limitations andadvance rates thereunder.  In addition,when prices for refined petroleum products decline, our exposure to risk ofloss in the event of nonperformance by our customers of our forward contractsmay be increased as they and/or their customers may breach their contracts andpurchase refined petroleum products at the then lower spot and/or retail marketprice.  Furthermore, lower prices forrefined petroleum products may diminish the amount of borrowings available forworking capital under our working capital revolving credit facility as a resultof borrowing base limitations.

 

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·              *New,stricter environmental laws and regulations could significantly increase ourcosts, which could adversely affect our results of operations and financialcondition.*  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.

 

**Results ofOperations**

 

***Evaluating Our Results of Operations***

 

Our management uses a variety of financial andoperational measurements to analyze our performance.  These measurements include:(1) net product margin, (2) gross profit, (3) selling, generaland administrative expenses (“SG&A”), (4) operating expenses,(5) degree days, (6) net income per diluted limited partner unit,(7) earnings before interest, taxes, depreciation and amortization (“EBITDA”)and (8) distributable cash 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 and natural gas that we selland all associated costs to bring such products to the point of sale.

 

*Selling,General and Administrative Expenses*

 

OurSG&A expenses include, among other things, marketing costs, corporateoverhead, employee salaries and benefits, pension and 401(k) planexpenses, discretionary bonuses, non-interest financing costs, professionalfees and information technology expenses. Employee-related expenses including employee salaries, discretionarybonuses and related payroll taxes, benefits, and pension and 401(k) planexpenses are paid by our general partner which, in turn, is reimbursed forthese 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.

 

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*Degree Day*

 

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

 

*Net Income Per Diluted Limited Partner Unit*

 

Weuse net income per diluted limited partner unit to measure our financialperformance on a per-unit basis.  Netincome per diluted limited partner unit is defined as net income, divided bythe weighted average number of outstanding diluted common and subordinatedunits, or limited partner units, during the period.

 

*EBITDA*

 

EBITDAis a non-GAAP financial measure used as a supplemental financial measure bymanagement and external users of our consolidated financial statements, such asinvestors, commercial banks and research analysts, to assess:

 

·              our compliance with certain financial covenantsincluded in our debt agreements;

 

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

 

·              our ability to generate cash sufficient to payinterest on our indebtedness and to make distributions to our partners;

 

·              our operating performance and return on investedcapital as compared to those of other companies in the wholesale, marketing anddistribution of refined petroleum products, without regard to financing methodsand capital structure; and

 

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

 

EBITDAshould not be considered as an alternative to net income, operating income,cash flow from operating activities or any other measure of financialperformance or liquidity presented in accordance with GAAP.  EBITDA excludes some, but not all, items thataffect net income, and this measure may vary among other companies.  Therefore, EBITDA may not be comparable tosimilarly titled measures 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.  In December 2009,we amended our partnership agreement to restate the provisions governingconversion of the subordinated units to use distributable cash flow to testwhether we have “earned” the minimum quarterly distribution.  Distributable cash flow means our net incomeplus depreciation and amortization minus maintenance capital expenditures, aswell as adjustments to eliminate items approved by the audit committee of theboard of directors of our general partner that are extraordinary ornon-recurring in nature and that would otherwise increase distributable cashflow.  Specifically, this financialmeasure indicates to investors whether or not we have generated sufficientearnings on a current or historic level that can sustain or support an increasein our quarterly cash distribution. Distributable cash flow is a quantitative standard used by theinvestment community with respect to publicly traded partnerships.  Distributable cash flow should not beconsidered as an alternative to net income, cash flow from operations, or anyother measure of financial performance presented in accordance with GAAP.  In addition, our distributable cash flow maynot be comparable to distributable cash flow or similarly titled measures ofother companies.

 

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***Three and six months ended June 30, 2010 and 2009***

 

Duringthe three and six months ended June 30, 2010, we experienced the followingevents:

 

·                     Refined petroleum productprices increased during the three and six months ended June 30, 2010compared to the same periods in 2009.

 

·                     Our second quarter 2010gasoline margin improved compared to the first quarter of 2010.  The first quarter of 2010 was marked bymargin pressure in the gasoline market compared to the first quarter of 2009.

 

·                     Temperatures for the threemonths ended June 30, 2010 were 36% warmer than normal and 30% warmer thanthe second quarter of 2009.  Temperaturesfor the six months ended June 30, 2010 were 14% warmer than normal and 15%warmer than the comparable period in 2009.

 

·                     Our reserve for creditlosses for the three and six months ended June 30, 2010 were less by$425,000 and $875,000, respectively, compared to the comparable periods in2009.

 

·                     We believe heating oilconservation continued during the three and six months ended June 30,2010.

 

Thefollowing table provides the prices of and percentage increases in refinedpetroleum product and natural gas prices at the end of the first two quartersin 2010 as compared to each comparable quarter in 2009:

 
| **Period:**        | ** ** | **Heating  Oil**$ per  gallon(1) | ** ** | **Gasoline**$ per  gallon(1) | ** ** | **Residual  Oil**$ per  gallon(2) | ** ** | **Natural  Gas**$ per gallon  equivalent(3) |
|--------------------|------------|---------------------------------------|------------|-----------------------------------|------------|----------------------------------------|------------|--------------------------------------------------|
| ** **         | ** ** | ** **                            | ** ** | ** **                        | ** ** | ** **                             | ** ** | ** **                                       |
| At  March 31, 2009 |       | $1.34                                 |       | $1.40                             |       | $0.95                                  |       | $0.62                                            |
| At  March 31, 2010 |       | $2.16                                 |       | $2.31                             |       | $1.76                                  |       | $0.63                                            |
| Change             |       | 61%                                   |       | 65%                               |       | 85%                                    |       | 2%                                               |
|               |       |                                  |       |                              |       |                                   |       |                                             |
| At  June 30, 2009  |       | $1.72                                 |       | $1.90                             |       | $1.49                                  |       | $0.62                                            |
| At  June 30, 2010  |       | $1.98                                 |       | $2.06                             |       | $1.61                                  |       | $0.75                                            |
| Change             |       | 15%                                   |       | 8%                                |       | 8%                                     |       | 21%                                              |
|               |       |                                  |       |                              |       |                                   |       |                                             |

 

(1)  Source:  New York Mercantile Exchange(closing price)

(2)  Source:  Platts Oilgram Price Report (6-1% New YorkHarbor; average)

(3)  Source:  Platts Gas Daily Report (Tennessee zonedelivered)

 

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***Key Performance 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 (gallons and dollars in thousands, except per unitamounts):

 
| ** **                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                             | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                             | ** ** | **2010**                         | ** ** | **2009**                       | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net income                                             |       | $                                | 3,159      |                           | $          | 978 |   | $ | 20,548 |   | $ | 19,841 |   |
|                                                   |       |                             |       |                           |       |   |   |   |   |
| Net income per diluted limited partner unit (1)        |       | $                                | 0.18       |                           | $          | 0.07 |   | $ | 1.30 |   | $ | 1.46 |   |
|                                                   |       |                             |       |                           |       |   |   |   |   |
| EBITDA (2)                                             |       | $                                | 12,058     |                           | $          | 8,586 |   | $ | 37,947 |   | $ | 35,952 |   |
|                                                   |       |                             |       |                           |       |   |   |   |   |
| Distributable cash flow (3)                            |       | $                                | 7,111      |                           | $          | 3,288 |   | $ | 28,065 |   | $ | 25,284 |   |
|                                                   |       |                             |       |                           |       |   |   |   |   |
| **Wholesale Segment:**                                 |       |                             |       |                           |       |   |   |   |   |
| Volume (gallons)                                       |       | 682,034                          |       | 682,771                        |       | 1,573,066 |   | 1,721,390 |   |
| Sales                                                  |       |                             |       |                           |       |   |   |   |   |
| Distillates                                            |       | $                                | 442,595    |                           | $          | 405,060 |   | $ | 1,401,852 |   | $ | 1,411,676 |   |
| Gasoline                                               |       | 987,806                          |       | 720,330                        |       | 1,862,493 |   | 1,221,989 |   |
| Residual oil                                           |       | 8,268                            |       | 5,853                          |       | 20,397 |   | 17,343 |   |
| Total                                                  |       | $                                | 1,438,669  |                           | $          | 1,131,243 |   | $ | 3,284,742 |   | $ | 2,651,008 |   |
| Net product margin (4)                                 |       |                             |       |                           |       |   |   |   |   |
| Distillates                                            |       | $                                | 6,460      |                           | $          | 13,477 |   | $ | 40,480 |   | $ | 47,330 |   |
| Gasoline                                               |       | 23,210                           |       | 12,127                         |       | 31,921 |   | 23,913 |   |
| Residual oil                                           |       | 2,434                            |       | 2,294                          |       | 5,290 |   | 5,114 |   |
| Total                                                  |       | $                                | 32,104     |                           | $          | 27,898 |   | $ | 77,691 |   | $ | 76,357 |   |
| **Commercial Segment:**                                |       |                             |       |                           |       |   |   |   |   |
| Volume (gallons)                                       |       | 53,811                           |       | 45,533                         |       | 122,112 |   | 121,261 |   |
| Sales                                                  |       | $                                | 96,032     |                           | $          | 69,906 |   | $ | 214,704 |   | $ | 183,096 |   |
| Net product margin (4)                                 |       | $                                | 2,804      |                           | $          | 2,596 |   | $ | 7,722 |   | $ | 7,524 |   |
| **Combined sales and net product  margin:**            |       |                             |       |                           |       |   |   |   |   |
| Sales                                                  |       | $                                | 1,534,701  |                           | $          | 1,201,149 |   | $ | 3,499,446 |   | $ | 2,834,104 |   |
| Net product margin (4)                                 |       | $                                | 34,908     |                           | $          | 30,494 |   | $ | 85,413 |   | $ | 83,881 |   |
| Depreciation allocated to cost of sales                |       | 2,947                            |       | 2,705                          |       | 5,684 |   | 5,378 |   |
| **Combined gross profit**                              |       | $                                | 31,961     |                           | $          | 27,789 |   | $ | 79,729 |   | $ | 78,503 |   |
|                                                   |       |                             |       |                           |       |   |   |   |   |
| **Weather conditions:**                                |       |                             |       |                           |       |   |   |   |   |
| Normal heating degree days                             |       | 784                              |       | 784                            |       | 3,654 |   | 3,654 |   |
| Actual heating degree days                             |       | 503                              |       | 716                            |       | 3,127 |   | 3,693 |   |
| Variance from normal heating degree days               |       | (36%                             | )          | (9%                            | )          | (14% | ) | 1% |   |
| Variance from prior period actual heating degree  days |       | (30%                             | )          | (1%                            | )          | (15% | ) | 7% |   |

 

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(1)             See Note 3 of Notes to Consolidated FinancialStatements for net income per diluted limited partner unit calculation.

(2)             EBITDA is a non-GAAP financial measurewhich is discussed above under “—Evaluating Our Results of Operations.”  The table below presents reconciliations ofEBITDA to the most directly comparable GAAP financial measures.

(3)             Distributable cash flow is a non-GAAPfinancial measure which is discussed above under “—Evaluating Our Results ofOperations.”  The table below presentsreconciliations of distributable cash flow to the most directly comparable GAAPfinancial measures.

(4)             Net product margin is a non-GAAP financialmeasure which is discussed above under “—Evaluating Our Results of Operations.”  The table above reconciles net product marginon a combined basis to gross profit, a directly comparable GAAP financialmeasure.

 

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Thefollowing table presents reconciliations of EBITDA to the most directlycomparable GAAP financial measures on a historical basis for each periodpresented (in thousands):

 
| ** **                                                                            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                            | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                            | ** ** | **2010**                         | ** ** | **2009**                       | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Reconciliation of net income to  EBITDA:**                                          |       |                             |       |                           |       |   |   |   |   |
| Net income                                                                            |       | $                                | 3,159      |                           | $          | 978 |   | $ | 20,548 |   | $ | 19,841 |   |
| Depreciation and amortization and amortization of  deferred financing fees            |       | 4,525                            |       | 4,036                          |       | 8,574 |   | 8,038 |   |
| Interest expense                                                                      |       | 4,374                            |       | 3,422                          |       | 8,438 |   | 7,198 |   |
| Income tax expense                                                                    |       | —                           |       | 150                            |       | 387 |   | 875 |   |
| EBITDA                                                                                |       | $                                | 12,058     |                           | $          | 8,586 |   | $ | 37,947 |   | $ | 35,952 |   |
|                                                                                  |       |                             |       |                           |       |   |   |   |   |
| **Reconciliation  of net cash provided by (used in) operating activities to EBITDA:** |       |                             |       |                           |       |   |   |   |   |
| Net cash provided by (used in) operating  activities                                  |       | $                                | 5,070      |                           | $          | (91,049 | ) | $ | 50,564 |   | $ | 20,181 |   |
| Net changes in operating assets and liabilities  and certain non-cash items           |       | 2,614                            |       | 96,063                         |       | (21,442 | ) | 7,698 |   |
| Interest expense                                                                      |       | 4,374                            |       | 3,422                          |       | 8,438 |   | 7,198 |   |
| Income tax expense                                                                    |       | —                           |       | 150                            |       | 387 |   | 875 |   |
| EBITDA                                                                                |       | $                                | 12,058     |                           | $          | 8,586 |   | $ | 37,947 |   | $ | 35,952 |   |

 

Thefollowing table presents reconciliations of distributable cash flow to the mostdirectly comparable GAAP financial measures on a historical basis for eachperiod presented (in thousands):

 
| ** **                                                                                              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                                              | ** ** | **2010**                         | ** ** | **2009**                       | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Reconciliation of net income to  distributable****cash flow:**                                        |       |                             |       |                           |       |   |   |   |   |
| Net income                                                                                              |       | $                                | 3,159      |                           | $          | 978 |   | $ | 20,548 |   | $ | 19,841 |   |
| Depreciation and amortization and amortization of  deferred financing fees                              |       | 4,525                            |       | 4,036                          |       | 8,574 |   | 8,038 |   |
| Maintenance capital expenditures                                                                        |       | (573                             | )          | (1,726                         | )          | (1,057 | ) | (2,595 | ) |
| Distributable cash flow                                                                                 |       | $                                | 7,111      |                           | $          | 3,288 |   | $ | 28,065 |   | $ | 25,284 |   |
|                                                                                                    |       |                             |       |                           |       |   |   |   |   |
| **Reconciliation  of net cash provided by (used in) operating activities to distributable cash  flow:** |       |                             |       |                           |       |   |   |   |   |
| Net cash provided by (used in) operating  activities                                                    |       | $                                | 5,070      |                           | $          | (91,049 | ) | $ | 50,564 |   | $ | 20,181 |   |
| Net changes in operating assets and liabilities  and certain non-cash items                             |       | 2,614                            |       | 96,063                         |       | (21,442 |   | 7,698 |   |
| Maintenance capital expenditures                                                                        |       | (573                             | )          | (1,726                         | )          | (1,057 | ) | (2,595 | ) |
| Distributable cash flow                                                                                 |       | $                                | 7,111      |                           | $          | 3,288 |   | $ | 28,065 |   | $ | 25,284 |   |

 

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***Consolidated Results***

 

Ourtotal sales for the second quarter of 2010 increased by $333.6 million, or28%, to $1,534.7 million compared to $1,201.1 million for the sameperiod in 2009.  The increase was driven primarily by higher refined petroleum productprices for the three months ended June 30, 2010 compared to the same period in 2009.  Our aggregate volume of product soldincreased by approximately 7 million gallons, or 1%, to 736** **million gallons.  The increase in volume primarily includesincreases of approximately 38 million gallons in gasoline and 5 million gallons in residual oil.  The overall increase in volume was offset bya 36 million gallondecrease in distillates attributable to significantly warmertemperatures during the second quarter of 2010 compared to the same period in 2009,increased competition in the marketplace, continued conservation and economicconditions.  The number of actual heating degree days decreased by 30% to 503 for thethree months ended June 30,2010 compared with 716 for the same period in 2009.  Our gross profit for the secondquarter of 2010 was $32.0** **million,an increase of $4.2** **million,or 15%, compared to $27.8** **millionfor the same period in 2009.

 

Ourtotal sales for the six months ended June** **30, 2010increased by $665.3 million, or 23%, to $3,499.4 million compared to$2,834.1 million for the same period in 2009.  Theincrease was driven primarily by significantly higher refined petroleum productand natural gas prices for the six months ended June 30, 2010 compared to the same period in2009.  Our aggregate volume of productsold decreased by approximately 148 million gallons, or 8%, to 1,695** **million gallons.  The decrease in volume primarily includesdecreases of approximately 209 million gallons and 14 million gallons in distillates and residual oil, respectively, attributable tosignificantly warmer temperatures during the first six months of 2010compared to the same period in 2009, increased competition in the marketplace,continued conservation and economic conditions. The number of actual heatingdegree days decreased 15% to 3,127 for the six months ended June 30, 2010 compared with 3,693 for the sameperiod in 2009.  The overalldecrease in volume sold was offset by a 66** **milliongallon increase in gasoline.  Our gross profit for the six monthsended June 30, 2010 was $79.7** **million,an increase of $1.2** **million,or 2%, compared to $78.5** **millionfor the same period in 2009, due primarily to improved unit margins ingasoline, offset by a lower net product margin in distillates and warmertemperatures.

 

*WholesaleSegment*

 

Distillates.  Wholesaledistillate sales for the three months ended June 30, 2010 increased by$37.5 million, or 9%, to $442.6 million compared to$405.1 million for the three months ended June 30, 2009 primarily dueto increased refined petroleum product prices. During the first six months of 2010, wholesale distillate salesdecreased by $9.8 million to $1,401.9 million compared to$1,411.7 million for the same period in 2009, attributable to a 209million gallon decrease in volume sold due to significantly warmer temperatures during the firstsix months of 2010 compared to the same period in 2009, increased competitionin the marketplace, continued conservation and economic conditions.  Primarily for the same reasons, our net productmargin from distillate sales decreased by $7.0 million, or 52%, to$6.5 million for the three months ended June 30, 2010 and by6.8 million, or 14%, to $40.5 million for the six months endedJune 30, 2010 compared the same periods in 2009.

 

Gasoline.  Wholesalegasoline sales for the three months ended June 30, 2010 were$987.8 million compared to $720.3 million for the same period in2009.  During the first six months of2010, wholesale gasoline sales were $1,862.5 million compared to$1,222.0 million for the same period in 2009.  The increases of $267.5 million, or37%, and $640.5 million, or52%, were due primarily to higher gasoline prices and increases ingasoline volume sold compared to the prior periods.  The increases in gasoline volumewere due to select selling opportunities and increased demand during the threeand six month periods ended June 30, 2010.  Our net productmargin from gasoline sales increased by $11.1 million to$23.2 million for the three months ended June 30, 2010 and by$8.0 million to $31.9 million for the six months ended June 30,2010 compared to the same periods in 2009. These increases were primarily attributable to improved unit margins andincreases in gasoline volume sold for the three and six months endedJune 30, 2010 compared to the same periods in 2009.

 

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Residual Oil.  Wholesaleresidual oil sales for the three months ended June 30, 2010 were$8.2 million compared to $5.8 million for the three months endedJune 30, 2009.  During the first sixmonths of 2010, residual oil sales were $20.3 million compared to$17.3 million for the same period in 2009. The increases of $2.4 million, or 41%, and $3.0 million, or17%, were primarily due to the increase in refined petroleum productprices.  For the first six months of2010, we experienced a 5 million gallon decrease in residual oil volumesold, primarily due to warmer temperatures compared to the same period in 2009,continued conservation, challenging economic conditions, system conversions andfuel switching due to the comparative price advantage of natural gas overresidual oil.  Our net product margin contribution from residual oil salesincreased by $0.1 million to $2.4 million for the three months endedJune 30, 2010 and by $0.2 million to $5.3 million for the sixmonths ended June 30, 2010 compared to the same periods in 2009.

 

*CommercialSegment*

 

Inour Commercial segment, residual oil accounted for approximately 56% and 55% oftotal commercial volume sold for the three months ended June 30, 2010 and2009, respectively, and approximately 55% and 63% for the six months endedJune 30, 2010 and 2009, respectively. Distillates, gasoline and natural gas accounted for the remainder of thetotal volume sold.

 

Commercialresidual oil sales increased by approximately 50% due to a 20% increase involume sold and increased refined petroleum product prices for the three monthsended June 30, 2010.  Commercialresidual oil sales increased by approximately 17% for the six months endedJune 30, 2010, despite a 12% 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 markets.

 

*Selling, General and Administrative Expenses*

 

SG&Aexpenses increased by $0.6 million, or 4%, to $13.9 million for thethree months ended June 30, 2010 compared to $13.3 million for thesame period in 2009.  The increase wasprimarily due to increases of $1.2 million in salaries, $0.8 millionin bank fees, $0.6 million in professional fees and $0.2 million inother SG&A expenses, offset by decreases of $1.0 million in short-termincentive compensation, $0.5 million in bad debt accruals,$0.5 million in compensation cost under our long-term incentive plan and$0.2 million in pension and 401(k) expenses.

 

SG&Aexpenses decreased by $0.9 million, or 3%, to $30.5 million for thesix months ended June 30, 2010 compared to $31.4 million for the sameperiod in 2009.  The decrease wasprimarily due to decreases of $4.9 million in short-term incentivecompensation, $0.9 million in bad debt accruals, $0.7 million incompensation cost under our long-term incentive plan and $0.4 million inpension and 401(k) expenses, offset by increases of $2.5 million insalaries, $1.4 million in professional fees, $0.8 million in bankfees, $0.3 million in costs associated with the expansion of our naturalgas operations, $0.3 million in project development costs and$0.7 million in various other SG&A expenses.  The overall decrease in SG&A expenses wasachieved despite an increase of $1.3 million in legal, consulting andother expenses related to the FTC’s regulatory review of our acquisition of theWarex Terminals (see Note 12 of Notes to Consolidated Financial Statements).

 

*OperatingExpenses*

 

Operatingexpenses increased by $0.7 million, or 7%, to $9.8 million for thethree months ended June 30, 2010 compared to $9.1 million for thesame period in 2009.  The increaseprimarily represents the costs associated with the acquisition of the WarexTerminals (see Note 12 of Notes to Consolidated Financial Statements).

 

Operatingexpenses increased by $0.9 million, or 5%, to $18.5 million for thesix months ended June 30, 2010 compared to $17.6 million for the sameperiod in 2009.  The increase wasprimarily due to $0.7 million in expenses associated with the acquisitionof the Warex Terminals (see Note 12 of Notes to Consolidated FinancialStatements), $0.3 million in expenses related to our leased storagefacility in Oyster Bay (Commander) New York and $0.1 million in otheroperating expenses, offset by a decrease $0.2 million in operatingexpenses at our Albany, New York terminal.

 

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*Interest Expense*

 

Interestexpense for the three months ended June 30, 2010 increased by$1.0 million, or 28%, to $4.4 million compared to $3.4 millionfor the same period in 2009.  Interestexpense for the six months ended June 30, 2010 increased by$1.2 million, or 17%, to $8.4 million compared to $7.2 millionfor the same period in 2009.  Weattribute the increase primarily to higher average balances on our workingcapital revolving credit facility from carrying higher average balances ofinventories and accounts receivable reflecting increased refined petroleumproduct prices.  Also, we had additionalborrowing costs as a result of the acquisition of the Warex Terminals.  In addition, the costs of borrowings under thecredit agreement were increased commencing with the May 14, 2010 amendment to thecredit agreement.

 

**Liquidityand Capital Resources**

 

***Liquidity***

 

Ourprimary liquidity needs are to fund our working capital requirements, capitalexpenditures and distributions.  Cashgenerated from operations and our working capital revolving credit facilityprovide our primary sources of liquidity. Working capital increased by $87.2 million to $382.4 millionat June 30, 2010 compared to $295.2 million at December 31, 2009as a result of the public offering discussed below.

 

On February 12, 2010, we paida cash distribution to our common and subordinated unitholders and our generalpartner of approximately $6.5 million for the fourth quarter of 2009, andon May 14, 2010, we paid a cash distribution to our common andsubordinated unitholders and our general partner of approximately$8.5 million for the first quarter of 2010.  On July 21, 2010, the board of directorsof our general partner declared a quarterly cash distribution of $0.4875 perunit for the period from April 1, 2010 throughJune 30, 2010 ($1.95per unit on an annualized basis) to our common and subordinated unitholders ofrecord as of the close of business August 4, 2010. We expect to pay the cash distribution of approximately$8.5 million on August 13, 2010.

 

On March 19, 2010, we completeda public offering of 3,910,000 common units at a price of $22.75 per commonunit, which included a 510,000 common unit purchase option exercised by theunderwriters.  Net proceeds wereapproximately $84.6 million,after deducting approximately $4.4 million in underwriting fees and offering expenses.  We used the net proceeds to reduceindebtedness under our credit agreement. See Note 16of Notes to Consolidated Financial Statements for additional informationrelated to the public offering.

 

OnMay 24, 2010, Global entered into the Purchase Agreement with ExxonMobilCorporation, pursuant to which Global agreed to acquire 190 Mobil brandedretail gas stations in the Subject States for a purchase price of$200.0 million.  In connection withthe transaction, we will assume certain environmental liabilities.  In addition, ExxonMobil Corporation hasagreed to assign to Global the right to supply Mobil branded fuel to suchstations and to 31 Mobil branded stations that are owned and operated byindependent dealers in the Subject States. We will also enter into a long-term Brand Fee Agreement, which willentitle us to sell Mobil branded gasoline and diesel fuel in the SubjectStates, as well as Maine and Vermont.  Weexpect to close the acquisition by late in the third quarter or early fourthquarter of 2010 and we currently expect to finance the purchase of the assetswith borrowings under our revolving credit agreement with our bank group and/orby accessing the capital markets.  Globalhas deposited approximately $4.8 million in an escrow account and in August 2010,upon the completion of the due diligence period, Global will be required tomake an additional deposit of $6.0 million.  Global is only entitled to the return of thedeposits under limited circumstances. See Note 20 of Notes to Consolidated Financial Statements foradditional information on the transaction.

 

***Capital Expenditures***

 

Ourterminalling operations require investments to expand, upgrade and enhanceexisting operations and to meet environmental and operations regulations.  We categorize our capital requirements aseither maintenance capital expenditures or expansion capital expenditures.  Maintenance capital expenditures representcapital expenditures to repair or replace partially or fully depreciated assetsto maintain the operating capacity of, or revenues generated by, existingassets and extend their useful lives. Maintenance capital expenditures include expenditures required tomaintain equipment reliability, tankage and pipeline integrity and safety andto address certain environmental regulations. We anticipate that maintenance capital expenditures will be funded withcash generated by operations.  We hadapproximately $1.0 million and $2.6 million in maintenance capitalexpenditures for the six months ended June 30, 

 

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2010and 2009, respectively, which are included in capital expenditures in theaccompanying consolidated statements of cash flows.  Repair and maintenance expenses associatedwith existing assets that are minor in nature and do not extend the useful lifeof existing assets are charged to operating expenses as incurred.

 

Expansioncapital expenditures include expenditures to acquire assets to grow ourbusiness or expand our existing facilities, such as projects that increase ouroperating capacity or revenues by increasing tankage, diversifying productavailability at various terminals and adding terminals.  We have the ability to fund our expansioncapital expenditures through cash from operations or our credit agreement or byissuing additional equity.  We hadapproximately $49.8 million and $3.7 million in expansion capitalexpenditures for the six months ended June 30, 2010 and 2009,respectively.  Specifically, for the sixmonths ended June 30, 2010, expansion capital expenditures includedapproximately $46.0 million in terminal acquisition costs related to theacquisition of the Warex Terminals (see Note 12 of Notes to ConsolidatedFinancial Statements).  In addition, wehad $3.8 million in expansion capital expenditures which consisted of$3.3 million in costs related to our Albany, New York terminal,$0.4 million in bio-fuel conversion costs at our Chelsea, Massachusettsterminal and $0.1 million in other expansion capital expenditures, whichare included in capital expenditures in the accompanying consolidatedstatements of cash flows.  The$3.3 million in costs in Albany include costs related to our terminal andrail expansion project, a continuing program to bring previously out-of-permittanks back online, the installation of a marine vapor recovery system to allowfor loading and offloading of gasoline and ethanol and the conversion of twodistillate storage tanks to gasoline.

 

Comparatively,for the six months ended June 30, 2009, expansion capital expendituresincluded approximately $2.7 million at the Albany, New York terminal incosts related to bringing formerly out-of-permit tanks back online and to dockexpansion, $0.8 million in additional terminal equipment at theProvidence, Rhode Island terminal and $0.2 million in automation costs atour leased storage facility in Long Island, New York.

 

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

 

***Cash Flow***

 

Thefollowing table summarizes cash flow activity (in thousands):

 
| ** **                                           | ** ** | **Six  Months Ended** | ** ** |
|------------------------------------------------------|------------|-----------------------|------------|
| ** **                                           | ** ** | **June 30,**     | ** ** |
| ** **                                           | ** ** | **2010**              | ** ** | **2009** | ** ** |
| Net  cash provided by operating activities           |       | $                     | 50,564     |   | $ | 20,181 |   |
| Net  cash used in investing activities               |       | $                     | (50,831    | ) | $ | (6,303 | ) |
| Net  cash provided by (used in) financing activities |       | $                     | 3,876      |   | $ | (11,861 | ) |

 

Cashflow from operating activities generally reflects our net income, inventorypurchasing patterns, the timing of collections on accounts receivable, theseasonality of our business, fluctuations in refined petroleum product prices,working capital requirements and general market conditions.

 

Netcash provided by operating activities was $50.6 million for the six monthsended June 30, 2010 compared to $20.2 million for the same period in2009, for a period-over-period increase in cash from operating activities of$30.3 million.  For the six monthsended June 30, 2010, we had an increase of $0.7 million in net incomecompared to the six months ended June 30, 2009 and seasonal decreases of$83.1 million, $22.6 million and $40.8 million in accountsreceivable, inventories and accounts payable, respectively.  Comparatively, for the six months ended June 30,2009, we had seasonal decreases of $57.6 million and $87.6 million inaccounts receivable and accounts payable, respectively, and an increase ininventories of $129.0 million due to favorable market conditions in which weelected to use our storage capacity to carry increased inventories.

 

Theoverall increase in cash provided by operating activities was offset by theperiod-over-period change in the fair value of forward fixed price contracts ofapproximately $176.2 million. Specifically, the contracts supporting our forward fixed price hedgeprogram required margin payments of $16.7 million to the NYMEX due to market direction in the six monthsended June 30, 2010, whilefor the six months ended June 30, 2009, similar hedging activityprovided 

 

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fundsfrom the NYMEX of$159.5 million.  Through the use ofregulated exchanges or derivatives, we maintain a position that issubstantially hedged with respect to such inventories.

 

Netcash used in investing activities was $50.8 million for the six monthsended June 30, 2010 compared to $6.3 million for the same period in2009, and included $1.0 million in maintenance capital expenditures and$49.8 million in expansion capital expenditures.  The $49.8 million included$46.0 million in terminal acquisition costs related to the acquisition ofthe Warex Terminals (see Note 12 of Notes to Consolidated FinancialStatements).  In addition, we had$3.8 million in expansion capital expenditures which consisted of$3.3 million in costs related to our terminal and rail expansion projectin Albany, New York, $0.4 million in bio-fuel conversion costs at ourChelsea, Massachusetts terminal and $0.1 million in other expansioncapital expenditures.  The$3.3 million in costs in Albany include a continuing program to bringpreviously out-of-permit tanks back online, the installation of a marine vaporrecovery system to allow for loading and offloading of gasoline and ethanol andthe conversion of two distillate storage tanks to gasoline.  Comparatively, for the six months endedJune 30, 2009, net cash used in investing activities included$2.6 million in maintenance capital expenditures and $3.7 million inexpansion capital expenditures ($2.7 million at the Albany, New Yorkterminal in costs related to bringing formerly out-of-permit tanks back onlineand to dock expansion, $0.8 million in additional terminal equipment atthe Providence, Rhode Island terminal and $0.2 million in automation costsat our leased storage facility in Long Island, New York).

 

Netcash provided by financing activities was $3.9 million for the six monthsended June 30, 2010 compared to net cash used in financing activities of$11.9 million for the same period in 2009, and included $84.6 millionin net proceeds from our public offering, offset by net payments on our creditfacilities of $65.4 million, $14.9 million in cash distributions toour common and subordinated unitholders and our general partner and$0.4 million in repurchased units held for tax obligations related tounits distributed under the LTIP. Comparatively, for the six months ended June 30, 2009, net cashused in financing activities included $13.1 million in cash distributionsto our common and subordinated unitholders and our general partner and$1.3 million in the repurchases of common units held on our behalfpursuant to our Repurchase Program and for satisfaction of our General Partner’sObligations (as defined in Note 14of Notes to Consolidated Financial Statements), offset by$2.5 million in net proceeds on our credit facilities.

 

***Credit Agreement***

 

OnMay 14, 2010, we, our general partner, our operating company and ouroperating subsidiaries amended and restated our credit agreement, increasingthe Aggregate Commitments (as defined in the credit agreement) available underthe credit agreement to $950.0 million from $850.0 million under theprevious credit agreement.  We repay amountsoutstanding and reborrow funds based on our working capital requirements and,therefore, classify as a current liability the portion of the working capitalrevolving credit facility we expect to pay down during the course of the year.  The long-term portion of the working capitalrevolving credit facility is the amount we expect to be outstanding during theentire year.  The credit agreement willmature on May 14, 2014.

 

Thereare two facilities under our credit agreement:

 

·              a working capital revolving credit facility to beused for working capital purposes and letters of credit in the principal amountequal to the lesser of our borrowing base and $800.0 million; and

 

·              a $150.0 million revolving credit facility tobe used for acquisitions and general corporate purposes.

 

Inaddition, the credit agreement has an accordion feature whereby we may requeston the same terms and conditions of our then existing credit agreement,provided no Event of Default (as defined in the credit agreement) then exists,an increase to the revolving credit facility, the working capital revolvingcredit facility, or both, by up to another $200.0 million, for a total creditfacility of up to $1.15 billion.  Anysuch request for an increase by us must be in a minimum amount of $5.0 million.  We cannot provide assurance, however, thatour lending group will agree to fund any request by us for additional amountsin excess of the total available commitments of $950.0** **million.

 

Availabilityunder our working capital revolving credit facility is subject to a borrowingbase which is redetermined from time to time and based on specific advancerates on eligible current assets.  Underthe credit agreement, our borrowings cannot exceed the then current borrowingbase.  Availability under our borrowingbase may be affected by events beyond our control, such as changes in refinedpetroleum product prices, collection cycles, counterparty performance, advancerates and limits and general economic conditions.  These and other events could require us toseek waivers or amendments of covenants or alternative sources of financing orto reduce expenditures.  

 

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Wecan provide no assurance that such waivers, amendments or alternative financingcould be obtained, or, if obtained, would be on terms acceptable to us.

 

Duringthe period from January 1, 2009 through May 13, 2010, borrowingsunder the previous credit agreement under the working capital revolving creditfacility bore interest at (1) the Eurodollar rate plus 1.75% to 2.25%,(2) the cost of funds rate plus 1.75% to 2.25%, or (3) the base rateplus 0.75% to 1.25%, each depending on the pricing level provided in theprevious credit agreement, which in turn depended upon the Combined InterestCoverage Ratio (as defined in the previous credit agreement).  Borrowings under the acquisition andrevolving credit facilities bore interest at (1) the Eurodollar rate plus2.25% to 2.75%, (2) the cost of funds rate plus 1.75% to 2.25%, or(3) the base rate plus 0.75% to 1.25%, each depending on the pricing levelprovided in the previous credit agreement, which in turn depended upon theCombined Interest Coverage Ratio.

 

CommencingMay 14, 2010 under the credit agreement, borrowings under the workingcapital revolving credit facility bear interest at (1) the Eurodollar rateplus 2.50% to 3.00%, (2) the cost of funds rate plus 2.50% to 3.00%, or(3) the base rate plus 1.50% to 2.00%, each depending on the pricing levelprovided in the credit agreement, which in turn depends upon the UtilizationAmount (as defined in the credit agreement). Borrowings under the revolving credit facility bear interest at(1) the Eurodollar rate plus 3.00% to 3.25%, (2) the cost of fundsrate plus 3.00% to 3.25%, or (3) the base rate plus 2.00% to 2.25%, eachdepending on the pricing level provided in the credit agreement, which in turndepends upon the Combined Senior Secured Leverage Ratio (as defined in thecredit agreement).  The average interestrates for the credit agreement were 4.1% and 3.8% for the three months endedJune 30, 2010 and 2009, respectively, and 3.6% and 3.8% for the six monthsended June 30, 2010 and 2009, respectively.

 

Weincur a letter of credit fee of 2.50% - 3.00% per annum for each letter ofcredit issued.  In addition, we incur acommitment fee on the unused portion of each facility under the creditagreement equal to 0.50% per annum.

 

Asof June 30, 2010, we had total borrowings outstanding under our creditagreement of $468.4 million, including $97.8 million outstanding onour acquisition facility.  In addition,we had outstanding letters of credit of $43.5 million.  The total remaining availability forborrowings and letters of credit at June 30, 2010 and December 31,2009 was $438.1 million and $211.2 million, respectively.

 

Thecredit agreement imposes financial covenants that require us to maintaincertain minimum working capital amounts, capital expenditure limits, a minimumEBITDA, a minimum combined interest coverage ratio, a maximum senior securedleverage ratio and a maximum total leverage ratio.  We were in compliance with the foregoingcovenants at June 30, 2010.  Thecredit agreement also contains a representation whereby there can be no eventor circumstance, either individually or in the aggregate, that has had or couldreasonably be expected to have a Material Adverse Effect (as defined in thecredit agreement).  Under the creditagreement, the clean down requirement of the previous credit agreement waseliminated.

 

Thecredit agreement limits distributions to our unitholders to available cash.

 

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

 

Thelending group under the credit agreement is comprised of the followinginstitutions: Bank of America, N.A.; JPMorgan Chase Bank, N.A.; WellsFargo Bank, N.A.; Societe Generale; Standard Chartered Bank;RBS Citizens, National Association; BNP Paribas; Cooperative CentraleRaiffeisen-Boerenleenbank B.A., “Radobank Nederland” New York Branch;Sovereign Bank (Santander Group); Credit Agricole Corporate and InvestmentBank; Keybank National Association; Toronto Dominion (New York);RZB Finance LLC; Royal Bank of Canada; Raymond James Bank, FSB;Barclays Bank plc; Webster Bank, National Association; Natixis, New YorkBranch; DZ Bank AG Deutsche Zentral-Genossenschaftsbank Frankfurt AmMain; Branch Banking & Trust Company; and Sumitomo Mitsui BankingCorporation.

 

***Off-Balance Sheet Arrangements***

 

Wehave no off-balance sheet arrangements.

 

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**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 conditions andactions 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 Consolidated Financial Statements, “Summary ofSignificant Accounting Policies” included in our Annual Report on Form 10-Kfor the year ended December 31, 2009. There have been no subsequent changes in these policies and estimatesthat had a significant impact on our financial condition and results ofoperations for the periods covered in this report.

 

**Item 3.       Quantitative and Qualitative Disclosures 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 two interest rate collars and aforward starting swap to manage exposure to interest rate risk and variousderivative instruments to manage exposure to commodity risk.

 

***Interest Rate Risk***

 

Weutilize variable rate debt and are exposed to market risk due to the floatinginterest rates on our credit agreement. Therefore, from time to time, we utilize interest rate collars and swapsto hedge interest obligations on specific and anticipated debt issuances.

 

OnMay 14, 2010, we amended our credit agreement.  During the period from January 1, 2009through May 13, 2010, borrowings under the previous credit agreement underthe working capital revolving credit facility bore interest at (1) theEurodollar rate plus 1.75% to 2.25%, (2) the cost of funds rate plus 1.75%to 2.25%, or (3) the base rate plus 0.75% to 1.25%, each depending on thepricing level provided in the previous credit agreement, which in turn dependedupon the Combined Interest Coverage Ratio (as defined in the previous creditagreement).  Borrowings under the acquisitionand revolving credit facilities bore interest at (1) the Eurodollar rateplus 2.25% to 2.75%, (2) the cost of funds rate plus 1.75% to 2.25%, or(3) the base rate plus 0.75% to 1.25%, each depending on the pricing levelprovided in the previous credit agreement, which in turn depended upon theCombined Interest Coverage Ratio. Commencing May 14, 2010 under the credit agreement, borrowingsunder the working capital revolving credit facility bear interest at(1) the Eurodollar rate plus 2.50% to 3.00%, (2) the cost of fundsrate plus 2.50% to 3.00%, or (3) the base rate plus 1.50% to 2.00%, eachdepending on the pricing level provided in the credit agreement, which in turndepends upon the Utilization Amount (as defined in the credit agreement).  Borrowings under the revolving credit facilitybear interest at (1) the Eurodollar rate plus 3.00% to 3.25%, (2) thecost of funds rate plus 3.00% to 3.25%, or (3) the base rate plus 2.00% to2.25%, each depending on the pricing level provided in the credit agreement,which in turn depends upon the Combined Senior Secured Leverage Ratio (asdefined in the credit agreement).  Theaverage interest rates for the credit agreement were 4.1% and 3.8% for thethree months ended June 30, 2010 and 2009, respectively, and 3.6% and 3.8%or the six months ended June 30, 2010 and 2009, respectively.

 

Asof June 30, 2010, we had total borrowings outstanding under the creditagreement of $468.4 million.  Theimpact of a 1% increase in the interest rate on this amount of debt would haveresulted in an increase in interest expense, and a corresponding decrease inour results of operations, of approximately $4.7 million annually,assuming, however, that our indebtedness remained constant throughout the year.

 

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We executed two zero premiuminterest rate collars with major financial institutions.  Each collar is designated and accounted foras a cash flow hedge.  The first collar,which became effective on May 14,2007 and expires on May 14,2011, is used to hedge the variability in interest payments due to changes inthe three-month LIBOR rate with respect to $100.0 million of three-month LIBOR-based borrowings.  Under the first collar, we capped ourexposure at a maximum three-month LIBOR rate of 5.75% and established a minimumfloor rate of 3.75%.  Whenever thethree-month LIBOR rate is greater than the cap, we receive from the respectivefinancial institution the difference between the cap and the currentthree-month LIBOR rate on the $100.0 million of three-month LIBOR-based borrowings.  Conversely, whenever the three-month LIBORrate is lower than the floor, we remit to the respective financial institutionthe difference between the floor and the current three-month LIBOR rate on the$100.0 millionof three-month LIBOR-based borrowings. As of June 30, 2010, the three-month LIBOR rate of 0.43%was lower than the floor rate.  As aresult, in August 2010, we will remit to the respective financialinstitution the difference between the floor rate and the current rate whichamounted to approximately $442,000.

 

On September 29, 2008, we executed our second zero premium interest ratecollar.  The second collar, which becameeffective on October 2,2008 and expires on October 2, 2013,is used to hedge the variability in cash flows in monthly interest paymentsmade on our $100.0 millionone-month LIBOR-based borrowings (and subsequent refinancings thereof) due tochanges in the one-month LIBOR rate. Under the second collar, we capped our exposure at a maximum one-monthLIBOR rate of 5.50% and established a minimum floor rate of 2.70%.  Whenever the one-month LIBOR rate is greaterthan the cap, we receive from the respective financial institution thedifference between the cap and the current one-month LIBOR rate on the $100.0 million of one-month LIBOR-based borrowings.  Conversely, whenever the one-month LIBOR rateis lower than the floor, we remit to the respective financial institution thedifference between the floor and the current one-month LIBOR rate on the $100.0 million of one-month LIBOR-based borrowings.  As of June 30, 2010, the one-month LIBOR rate of 0.35% was lowerthan the floor rate.  As a result, in July 2010,we remitted to the respective financial institution the difference between thefloor rate and the current rate which amounted to approximately $189,200.

 

In addition, in October 2009,we executed a forward starting swap with a major financial institution.  The swap, which will become effective on May 16, 2011 and expire on May 16, 2016, will be used to hedge the variability in interestpayments due to changes in the one-month LIBOR swap curve with respect to$100.0 millionof one-month LIBOR-based borrowings at a fixed rate of 3.93%.  See Note 6 of Notes to Consolidated Financial Statements foradditional information on the interest rate collars and the forward startingswap.

 

***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 the Chicago MercantileExchange and over-the-counter transactions, including swap agreements enteredinto with established financial institutions and other credit-approved energycompanies.  Our policy is generally topurchase only products for which we have a market and to structure our salescontracts so that price fluctuations do not materially affect our profit.  While our policies are designed to minimizemarket risk, some degree of exposure to unforeseen fluctuations in marketconditions remains.  Except for thecontrolled trading program discussed below, we do not acquire and hold futurescontracts or other derivative products for the purpose of speculating on pricechanges that might expose us to indeterminable losses.

 

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 at any one point in time.

 

Weenter into futures contracts to minimize or hedge the impact of marketfluctuations on our purchases and forward fixed price sales of refinedpetroleum products.  Any hedgeineffectiveness is reflected in our results of operations.  We utilize regulated exchanges, including theNYMEX and the Chicago Mercantile Exchange, which are regulated exchanges for energyproducts that it trades, thereby reducing potential delivery and supplyrisks.  Generally, our practice is toclose all exchange positions rather than to make or receive physicaldeliveries.  With respect to other energyproducts, which may not have a correlated exchange contract, we enter intoderivative agreements with 

 

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counterpartiesthat we believe have a strong credit profile, in order to hedge marketfluctuations and/or lock-in margins relative to our commitments.

 

AtJune 30, 2010, 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 or decrease are shown in the table below (in thousands):

 
| ** **                    | ** ** | ** **                                           | ** ** | **Gain (Loss)**                             | ** ** |
|-------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                    | ** ** | **Fair Value at  June 30, 2010** | ** ** | **Effect of 10%  Price Increase** | ** ** | **Effect of 10%  Price Decrease** | ** ** |
| NYMEX contracts               |       | $                                                    | 14,410     |                                             | $          | (31,118 | ) | $ | 31,118 |   |
| Swaps, options and other, net |       | 4,403                                                |       | (494                                             | )          | 6,054 |   |
|                          |       | $                                                    | 18,813     |                                             | $          | (31,612 | ) | $ | 37,172 |   |

 

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 and brokers.  These quotes are compared to the contractprice of the swap, which approximates the gain or loss that would have beenrealized if the contracts had been closed out at June 30, 2010.  For positions where independent quotationsare not available, an estimate is provided, or the prevailing market price atwhich the positions could be liquidated is used.  All hedge positions offset physical exposuresto the spot market; none of these offsetting physical exposures are included inthe above table.  Price-risksensitivities were calculated by assuming an across-the-board 10% increase ordecrease in price regardless of term or historical relationships between thecontractual price 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 brokerage margin balance was $19.8 million at June 30, 2010.

 

Weare exposed to credit loss in the event of nonperformance by counterparties offutures contracts, forward contracts and swap agreements.  We anticipate some nonperformance by some ofthese counterparties which, in the aggregate, we do not believe at this timewill have a material adverse effect on our financial condition, results ofoperations or cash available for distribution to our unitholders.  Futures contracts, the primary derivativeinstrument utilized, are traded on regulated exchanges, greatly reducingpotential credit risks.  Exposure on swapand certain option agreements is limited to the amount of the recorded fairvalue as of the balance sheet dates.  Weutilize primarily one clearing broker, a major financial institution, for allNYMEX derivative 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**

 

***Disclosure Controls 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 SECrules and forms and that information is accumulated and communicated toour management, including our principal executive officer and principalfinancial officer, as appropriate, to allow timely decisions regarding requireddisclosure.  Under the supervision and with the participation of ourprincipal executive officer and principal financial officer, managementevaluated the effectiveness of our disclosure controls and procedures (asdefined in Rules 13a-15(e) or 15d-15(e) of the ExchangeAct).  Based on that evaluation, our principal executive officer andprincipal financial officer concluded that our disclosure controls andprocedures were effective as of June 30, 2010.

 

Subsequentto the quarter ended June 30, 2010, following a change in the billingprotocol for a certain type of sales transaction for a specific customer,management discovered that fuel tax credits associated with such salestransactions had not been properly recorded. This coding error resulted in our sales and net income being understatedand accrued tax liability being overstated as of and for the three and sixmonths ended June 30, 2010.  As aresult, management and the Audit Committee of our general partner made thedecision to restate our consolidated financial statements as of and for theperiod ended June 30, 2010. The Partnership has primary as well assecondary controls in place, and documented, with respect to state and federalfuel taxes.  The Partnership discoveredthe error during a normal course control procedure.  The error was limited to one particular typeof sales transaction (i.e., not a systemic issue).  The impact was limited to two offsettingentries:  the tax liability account andsales account.  The Partnership believesthat: (1) bills to this customer were accurate in the course of theaffected period, and no other customers were affected by the error, (2) theerror did not cause an under/overpayment of taxes, and (3) there was noimpact on previously reported net cash provided by operating activities.  Management has determined that the error didnot rise to the level of a material weakness. The error, which resulted from a unique set of invoicing circumstancesfor a particular customer, did expose a significant deficiency.  The Partnership’s existing internal controlframework has been supplemented with an enhanced control process in relation toany new large, unique, or abnormal sales contracts.  After re-evaluating our disclosure controlsand procedures in light of the error and resulting deficiency described above,our principal executive officer and principal financial officer concluded thatour disclosure controls and procedures were effective.

 

***Internal Control over FinancialReporting***

 

Exceptas described above, there has not been any change in our internal control overfinancial reporting that occurred during the quarter ended June 30, 2010that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

51

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**PART II.  OTHER INFORMATION**

 

**Item 1.       Legal Proceedings**

 

***General***

 

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 below and in Note 13 in this Quarterly Reporton Form 10-Q, we are not aware of any significant legal or governmentalproceedings against us, or contemplated to be brought against us.  We maintain insurance policies with insurersin amounts and with coverage and deductibles as our general partner believesare reasonable and prudent.  However, wecan provide no assurance that this insurance will be adequate to protect usfrom all material expenses related to potential future claims or that theselevels of insurance will be available in the future at economically acceptableprices.

 

***Other***

 

Certainof our employees at our terminal in Oyster Bay (Commander), New York wereemployed under a collective bargaining agreement that expired in April 2010.  We are in the process of negotiating a newcollective bargaining agreement with a newly-elected union representing theseemployees and do not believe the results of these negotiations will have amaterial adverse effect on our operations.

 

Certainof our employees at our terminals in Albany and Newburgh, New York acquiredfrom ExxonMobil in 2007 are employed under a collective bargaining agreementthat expired in May, 2010.  We are in theprocess of negotiating a new collective bargaining agreement with the incumbentunion and do not believe the results of these negotiations will have a materialadverse effect on our operations.

 

**Item 1A.    Risk Factors**

 

Inaddition to other information set forth in this report, you should carefullyconsider the factors discussed below and in Part I, Item 1A, “RiskFactors” in our Annual Report on Form 10-K for the year endedDecember 31, 2009, which could materially affect our business, financialcondition or future results.

 

***Unitholders may have liability to repaydistributions.***

 

Undercertain circumstances, unitholders may have to repay amounts wrongfullyreturned or distributed to them.  UnderDelaware law, the Partnership may not make a distribution to unitholders if thedistribution would cause the Partnership’s liabilities to exceed the fair valueof its assets.  Delaware law providesthat for a period of three years from the date of the impermissibledistribution, limited partners who received the distribution and who knew atthe time of the distribution that it violated Delaware law will be liable tothe limited partnership for the distribution amount.  Purchasers of units who become limitedpartners are liable for the obligations of the transferring limited partner tomake contributions to the Partnership that are known to the purchaser of unitsat the time it became a limited partner and for unknown obligations if theliabilities could be determined from the Partnership’s partnershipagreement.  Liabilities to partners onaccount of their partnership interests and liabilities that are non-recourse tothe Partnership are not counted for purposes of determining whether adistribution is permitted.

 

***The recent adoption of derivatives legislation by the United StatesCongress could have an adverse effect on our ability to use derivativeinstruments to reduce the effect of commodity prices, interest rate and otherrisks associated with our business.***

 

TheUnited States Congress recently adopted comprehensive financial reformlegislation that establishes federal oversight and regulation of theover-the-counter derivatives market and entities, such as the Partnership, thatparticipate in that market.  The newlegislation was signed into law by the President on July 21, 2010 andrequires the Commodities Futures Trading Commission (the “CFTC”) and the SEC topromulgate rules and regulations implementing the new legislation within360 days from the date of enactment.  TheCFTC has also proposed regulations to set position limits for certain futuresand option contracts in the major energy markets, although it is not possibleat this time to predict whether or when the CFTC will adopt those rules orinclude comparable provisions in its rulemaking under the new legislation.  The financial reform legislation may alsorequire compliance with margin requirements and 

 

52

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withcertain clearing and trade-execution requirements in connection with certainderivative activities, although the application of those provisions isuncertain at this time.  The financialreform legislation may also require the counterparties to our derivativeinstruments to spin off some of their derivatives activities to a separateentity, which may not be as creditworthy as the current counterparty.  The new legislation and any new regulationscould significantly increase the cost of some derivative contracts (includingthrough requirements to post collateral which could adversely affect ouravailable liquidity), materially alter the terms of some derivative contracts,reduce the availability of some derivatives to protect against risks weencounter, reduce our ability to monetize or restructure our existingderivative contracts, and potentially increase our exposure to lesscreditworthy counterparties.

 

**Item 6.       Exhibits**

 
| 3.1    |   |   | — |   | Third Amended and Restated  Agreement of Limited Partnership of Global Partners LP dated as of  December 9, 2009 (incorporated herein by reference to Exhibit 3.1  to the Current Report on Form 8-K filed on December 15, 2009).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|--------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.1   |   |   | — |   | Amended and Restated  Credit Agreement, dated as of May 14, 2010, among Global  Operating LLC, Global Companies LLC, Global Montello Group Corp.,  Glen Hes Corp., Chelsea Sandwich LLC, GLP Finance Corp. and Global  Energy Marketing LLC as borrowers, Global Partners LP and Global  GP LLC, as guarantors, each lender from time to time party thereto, Bank  of America, N.A., as Administrative Agent and L/C Issuer, JPMorgan  Chase Bank, N.A. as Syndication Agent, Societe Generale, Standard  Chartered Bank, Wells Fargo Bank, N.A. and RBS Citizens, National  Association as Co-Documentation Agents and Banc of America  Securities LLC and JP Morgan Securities Inc. as Joint Lead  Arrangers and Joint Book Managers (incorporated herein by reference to  Exhibit 10.1 to the Current Report on Form 8-K filed on May 18,  2010). |
|   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.2   |   |   | — |   | Letter Agreement for 2010  Shared Services Fee Structure, dated as of May 12, 2010 between Global  Companies LLC and Alliance Energy LLC (incorporated herein by  reference to Exhibit 10.2 to the Current Report on Form 8-K filed  on May 18, 2010).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.3   |   |   | — |   | First Amendment to Second  Amended and Restated Terminal Storage Rental and Throughput Agreement, dated  May 12, 2010 among Global Petroleum Corp., Global Companies LLC and  Global Montello Group Corp. (incorporated herein by reference to  Exhibit 10.3 to the Current Report on Form 8-K filed on  May 18, 2010).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.4*  |   |   | — |   | Sale and Purchase  Agreement, dated May 24, 2010 among ExxonMobil Oil Corporation and Exxon  Mobil Corporation, as sellers, and Global Companies LLC (incorporated  herein by reference to Exhibit 10.4 to the Quarterly Report on  Form 10-Q filed on August 6, 2010).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

----

 
| **†** |   | Previously  filed.                                                                                                                                              |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                            |
| *          |   | Schedules and Exhibits have been omitted pursuant to  Item 601(b)(2) of  Regulation S-K and will be furnished supplementally to the SEC upon request. |

 

53

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|                               | **GLOBAL PARTNERS LP** |
|------------------------------------|------------------------|
|                               | By:                    | Global  GP LLC, |
|                               |                   | its  general partner |
|                               |                   |   |
|                               |                   |   |
| Dated:  November 2, 2010 |                   | By: | /s/  Eric Slifka |   |
|                               |                   |   | Eric  Slifka |
|                               |                   |   | President  and Chief Executive Officer |
|                               |                   |   | (Principal  Executive Officer) |
|                               |                   |   |
|                               |                   |   |
| Dated:  November 2, 2010 |                   | 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                 |       |       | —     |            | Third Amended and Restated  Agreement of Limited Partnership of Global Partners LP dated as of  December 9, 2009 (incorporated herein by reference to Exhibit 3.1  to the Current Report on Form 8-K filed on December 15, 2009). |
|                |       |       |       |            |   |
| 10.1                |       |       | —     |            | Amended and Restated  Credit Agreement, dated as of May 14, 2010, among Global  Operating LLC, Global Companies LLC, Global Montello Group Corp.,  Glen Hes Corp., Chelsea Sandwich LLC, GLP Finance Corp. and Global  Energy Marketing LLC as borrowers, Global Partners LP and Global  GP LLC, as guarantors, each lender from time to time party thereto, Bank  of America, N.A., as Administrative Agent and L/C Issuer, JPMorgan  Chase Bank, N.A. as Syndication Agent, Societe Generale, Standard  Chartered Bank, Wells Fargo Bank, N.A. and RBS Citizens, National  Association as Co-Documentation Agents and Banc of America  Securities LLC and JP Morgan Securities Inc. as Joint Lead  Arrangers and Joint Book Managers (incorporated herein by reference to  Exhibit 10.1 to the Current Report on Form 8-K filed on  May 18, 2010). |
|                |       |       |       |            |   |
| 10.2                |       |       | —     |            | Letter Agreement for 2010  Shared Services Fee Structure, dated as of May 12, 2010 between Global  Companies LLC and Alliance Energy LLC (incorporated herein by  reference to Exhibit 10.2 to the Current Report on Form 8-K filed  on May 18, 2010). |
|                |       |       |       |            |   |
| 10.3                |       |       | —     |            | First Amendment to Second  Amended and Restated Terminal Storage Rental and Throughput Agreement, dated  May 12, 2010 among Global Petroleum Corp., Global Companies LLC and  Global Montello Group Corp. (incorporated herein by reference to  Exhibit 10.3 to the Current Report on Form 8-K filed on  May 18, 2010). |
|                |       |       |       |            |   |
| 10.4*               |       |       | —     |            | Sale and Purchase  Agreement, dated May 24, 2010 among ExxonMobil Oil Corporation and Exxon  Mobil Corporation, as sellers, and Global Companies LLC (incorporated  herein by reference to Exhibit 10.4 to the Quarterly Report on  Form 10-Q filed on August 6, 2010). |
|                |       |       |       |            |   |
| 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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| **†** |   | Previously  filed.                                                                                                                                              |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                            |
| *          |   | Schedules and Exhibits have been omitted pursuant to  Item 601(b)(2) of  Regulation S-K and will be furnished supplementally to the SEC upon request. |

 

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