**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

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**FORM 10-Q**

| **(Mark One)**                                                                                                             |                                                                                          | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|------------|
| **x**                                                                                                                      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                 |                                                                                          | ** ** |
| **For the  quarterly period ended March 31, 2007**                                                                         |
| ** **                                                                                                                 |                                                                                          | ** ** |
| **OR**                                                                                                                     |
| ** **                                                                                                                 |                                                                                          | ** ** |
| **o**                                                                                                                      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                 |                                                                                          | ** ** |
| **For the  transition period  from              to** |

 

**Commission file number**001-32593

**Global Partners LP**

(Exactname of registrant as specified in its charter)

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

 

**P.O. Box 9161**

**800 South Street**

**Waltham, Massachusetts02454-9161**

(Address of principal executiveoffices, including zip code)

**(781) 894-8800**

(Registrant’stelephone number, including area code)

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

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer (as defined in Rule 12b-2 of the ExchangeAct. (Check one):

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

 

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

Theissuer had 5,642,424 common units, 5,642,424 subordinated units and 1,785,715Class B units outstanding as of May 9, 2007.

 

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**TABLE OF CONTENTS**

 
| **PART I.****   FINANCIAL  INFORMATION**                                                                  |   |   |   |
|---------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| ** **                                                                                                          |   |   |   |
| **Item  1.   Financial  Statements**                                                                      |   |   |   |
|                                                                                                                |   |   |   |
| Consolidated  Balance Sheets as of March 31, 2007 and December 31, 2006                                             |   |   |   |
|                                                                                                                |   |   |   |
| Consolidated Statements of Income for the three months  ended March 31, 2007 and 2006                               |   |   |   |
|                                                                                                                |   |   |   |
| Consolidated Statements of Cash Flows for the three  months ended March 31, 2007 and 2006                           |   |   |   |
|                                                                                                                |   |   |   |
| Consolidated Statements of Partners’ Equity for the  three months ended March 31, 2007                         |   |   |   |
|                                                                                                                |   |   |   |
| Notes  to Financial Statements                                                                                      |   |   |   |
|                                                                                                                |   |   |   |
| **Item 2.   Management’s  Discussion and Analysis of Financial Condition and Results of Operations** |   |   |   |
| ** **                                                                                                          |   |   |   |
| **Item 3.   Quantitative and  Qualitative Disclosures about Market Risk**                                 |   |   |   |
| ** **                                                                                                          |   |   |   |
| **Item 4.   Controls and  Procedures**                                                                    |   |   |   |
| ** **                                                                                                          |   |   |   |
| **PART  II.   OTHER  INFORMATION**                                                                        |   |   |   |
| ** **                                                                                                          |   |   |   |
| **Item  1.   Legal  Proceedings**                                                                         |   |   |   |
| ** **                                                                                                          |   |   |   |
| **Item  1A.   Risk  Factors**                                                                             |   |   |   |
| ** **                                                                                                          |   |   |   |
| **Item 6.   Exhibits**                                                                                    |   |   |   |
| ** **                                                                                                          |   |   |   |
| **SIGNATURES**                                                                                                      |   |   |   |
| ** **                                                                                                          |   |   |   |
| **INDEX TO EXHIBITS**                                                                                               |   |   |   |

 

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** **

**Item 1.    FinancialStatements**

**GLOBAL PARTNERS LPCONSOLIDATED BALANCE SHEETS(In thousands, except unit data)(Unaudited)**
| ** **                                                                                                                           | ** ** | **March 31  2007** | ** ** | **December 31  2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| **Assets**                                                                                                                           | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Current assets:                                                                                                                      |       |                    |       |                       |       |
| Cash and cash  equivalents                                                                                                           |       | $                       | 1,987      |                       | $          | 3,861 |   |
| Accounts  receivable, net                                                                                                            |       | 238,431                 |       | 202,580                    |       |
| Accounts  receivable—affiliates                                                                                                 |       | 1,849                   |       | 1,988                      |       |
| Inventories                                                                                                                          |       | 142,308                 |       | 288,067                    |       |
| Available for  sale securities                                                                                                       |       | —                  |       | 13,913                     |       |
| Brokerage margin  deposits                                                                                                           |       | 1,379                   |       | 625                        |       |
| Fair value of  forward fixed contracts                                                                                               |       | —                  |       | 66,115                     |       |
| Prepaid expenses  and other current assets                                                                                           |       | 9,753                   |       | 18,924                     |       |
| Total current  assets                                                                                                                |       | 395,707                 |       | 596,073                    |       |
|                                                                                                                                 |       |                    |       |                       |       |
| Property and equipment,  net                                                                                                         |       | 31,691                  |       | 31,657                     |       |
| Intangible assets, net                                                                                                               |       | 8,718                   |       | 9,076                      |       |
| Other assets                                                                                                                         |       | 7,074                   |       | 2,081                      |       |
| Total assets                                                                                                                         |       | $                       | 443,190    |                       | $          | 638,887 |   |
| ** **                                                                                                                           | ** ** | ** **              | ** ** | ** **                 | ** ** |
| **Liabilities and partners’  equity**                                                                                           | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Current liabilities:                                                                                                                 |       |                    |       |                       |       |
| Accounts payable                                                                                                                     |       | $                       | 172,704    |                       | $          | 222,034 |   |
| Revolving line  of credit—current portion                                                                                       |       | 53,800                  |       | 188,700                    |       |
| Notes payable,  other—current portion                                                                                           |       | 319                     |       | 319                        |       |
| Accrued expenses  and other current liabilities                                                                                      |       | 22,355                  |       | 35,573                     |       |
| Income taxes  payable                                                                                                                |       | 114                     |       | 1,164                      |       |
| Obligations on  forward fixed contracts and other derivatives                                                                        |       | 57                      |       | —                     |       |
| Total current  liabilities                                                                                                           |       | 249,349                 |       | 447,790                    |       |
|                                                                                                                                 |       |                    |       |                       |       |
| Revolving line of  credit—less current portion                                                                                  |       | 69,900                  |       | 82,000                     |       |
| Notes payable, other—less  current portion                                                                                      |       | 1,162                   |       | 1,239                      |       |
| Accrued pension benefit  cost                                                                                                        |       | 3,431                   |       | 3,170                      |       |
| Deferred compensation                                                                                                                |       | 1,342                   |       | 1,429                      |       |
| Other long-term  liabilities                                                                                                         |       | 20                      |       | 20                         |       |
| Total  liabilities                                                                                                                   |       | 325,204                 |       | 535,648                    |       |
| ** **                                                                                                                           | ** ** | ** **              | ** ** | ** **                 | ** ** |
| **Partners’ equity**                                                                                                            | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Common  unitholders (5,642,424 units issued and outstanding at March 31, 2007  and December 31, 2006)                      |       | 117,754                 |       | 104,212                    |       |
| Subordinated  unitholders (5,642,424 units issued and outstanding at March 31, 2007  and December 31, 2006)                |       | (130                    | )          | (13,672                    | )          |
| General partner  interest (2% interest with 230,303 equivalent units outstanding at  March 31, 2007 and December 31, 2006) |       | (8                      | )          | (560                       | )          |
| Accumulated  other comprehensive income                                                                                              |       | 370                     |       | 13,259                     |       |
| Total partners’  equity                                                                                                         |       | 117,986                 |       | 103,239                    |       |
| Total liabilities and  partners’ equity                                                                                         |       | $                       | 443,190    |                       | $          | 638,887 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

1

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**GLOBAL PARTNERS LPCONSOLIDATED STATEMENTS OF INCOME(In thousands, except per unit data)(Unaudited)**
| ** **                                                                    | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                    | ** ** | **March 31,**               | ** ** |
| ** **                                                                    | ** ** | **2007**                         | ** ** | **2006** | ** ** |
|                                                                          |       |                             |       |   |   |
| Sales                                                                         |       | $                                | 1,573,176  |   | $ | 1,351,023 |   |
| Cost of sales                                                                 |       | 1,530,924                        |       | 1,318,806 |   |
| Gross profit                                                                  |       | 42,252                           |       | 32,217 |   |
|                                                                          |       |                             |       |   |   |
| Costs and operating  expenses:                                                |       |                             |       |   |   |
| Selling, general  and administrative expenses                                 |       | 13,406                           |       | 10,928 |   |
| Operating  expenses                                                           |       | 5,890                            |       | 5,551 |   |
| Amortization  expenses                                                        |       | 358                              |       | 406 |   |
| Total costs and  operating expenses                                           |       | 19,654                           |       | 16,885 |   |
|                                                                          |       |                             |       |   |   |
| Operating income                                                              |       | 22,598                           |       | 15,332 |   |
|                                                                          |       |                             |       |   |   |
| Interest expense                                                              |       | (3,316                           | )          | (2,320 | ) |
| Other income                                                                  |       | —                           |       | 356 |   |
| Gain on sale of  investment                                                   |       | 14,118                           |       | — |   |
|                                                                          |       |                             |       |   |   |
| Income before income  tax expense                                             |       | 33,400                           |       | 13,368 |   |
|                                                                          |       |                             |       |   |   |
| Income tax expense                                                            |       | (525                             | )          | (680 | ) |
|                                                                          |       |                             |       |   |   |
| Net income                                                                    |       | $                                | 32,875     |   | $ | 12,688 |   |
|                                                                          |       |                             |       |   |   |
| Less:                                                                         |       |                             |       |   |   |
| General  partner’s interest in net income                                |       | (657                             | )          | (254 | ) |
| Limited  partners’ interest in net income                                |       | $                                | 32,218     |   | $ | 12,434 |   |
|                                                                          |       |                             |       |   |   |
| Net income per limited  partner unit, basic and diluted(1)                    |       | $                                | 1.75       |   | $ | 0.85 |   |
|                                                                          |       |                             |       |   |   |
| Weighted average limited partners’ units outstanding, basic and  diluted |       | 11,285                           |       | 11,285 |   |

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

The accompanying notes are an integral part of thesefinancial statements.

2

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** **

**GLOBAL PARTNERS LP****CONSOLIDATED STATEMENTS OFCASH FLOWS(In thousands)(Unaudited)**
| ** **                                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                                                               |       |                                             |       |   |   |
| **Operating activities**                                                           |       |                                             |       |   |   |
| Net income                                                                         |       | $                                                | 32,875     |   | $ | 12,688 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                             |       |   |   |
| Depreciation and  amortization                                                     |       | 1,164                                            |       | 966 |   |
| Amortization of  deferred financing fees                                           |       | 105                                              |       | 106 |   |
| Loss on  disposition of property and equipment and other                           |       | (1                                               | )          | 11 |   |
| Gain on sale of  investment                                                        |       | (14,118                                          | )          | — |   |
| Changes in  operating assets and liabilities:                                      |       |                                             |       |   |   |
| Accounts  receivable                                                               |       | (35,852                                          | )          | 57,435 |   |
| Accounts  receivable—affiliate                                                |       | 138                                              |       | (175 | ) |
| Inventories                                                                        |       | 145,759                                          |       | 110,161 |   |
| Broker margin  deposits                                                            |       | (753                                             | )          | 4,441 |   |
| Prepaid  expenses, all other current assets and other assets                       |       | 8,714                                            |       | 1,339 |   |
| Accounts payable                                                                   |       | (49,329                                          | )          | (128,487 | ) |
| Income taxes  payable                                                              |       | (1,051                                           | )          | (521 | ) |
| Accrued expenses  and all other current liabilities                                |       | (13,095                                          | )          | (1,375 | ) |
| Change in fair  value of forward fixed contracts                                   |       | 66,172                                           |       | — |   |
| Net cash provided by  operating activities                                         |       | 140,728                                          |       | 56,589 |   |
|                                                                               |       |                                             |       |   |   |
| **Investing activities**                                                           |       |                                             |       |   |   |
| Proceeds from sale of  investment                                                  |       | 15,262                                           |       | — |   |
| Maintenance capital  expenditures                                                  |       | (767                                             | )          | (104 | ) |
| Capital improvement  expenditures                                                  |       | (74                                              | )          | (744 | ) |
| Terminal  pre-acquisition deposit and other costs                                  |       | (4,708                                           | )          | — |   |
| Proceeds from sale of  property and equipment                                      |       | 2                                                |       | 19 |   |
| Net cash provided by  (used in) investing activities                               |       | 9,715                                            |       | (829 | ) |
|                                                                               |       |                                             |       |   |   |
| **Financing activities**                                                           |       |                                             |       |   |   |
| Payments on revolving  line of credit, net                                         |       | (147,000                                         | )          | (51,900 | ) |
| Payments on note  payable, other                                                   |       | (78                                              | )          | (73 | ) |
| Distributions to  partners                                                         |       | (5,239                                           | )          | (4,733 | ) |
| Net cash used in  financing activities                                             |       | (152,317                                         | )          | (56,706 | ) |
|                                                                               |       |                                             |       |   |   |
| Decrease in cash and  cash equivalents                                             |       | (1,874                                           | )          | (946 | ) |
| Cash and cash  equivalents at beginning of period                                  |       | 3,861                                            |       | 1,769 |   |
| Cash and cash  equivalents at end of period                                        |       | $                                                | 1,987      |   | $ | 823 |   |
|                                                                               |       |                                             |       |   |   |
| **Supplemental information**                                                       |       |                                             |       |   |   |
| Cash paid during the period for interest                                           |       | $                                                | 3,422      |   | $ | 2,332 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

3

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** **

**GLOBAL PARTNERS LPCONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY(In thousands)(Unaudited)**
| ** **                             | ** ** | ** **      | ** ** | ** **       | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** **         | ** ** |
|----------------------------------------|------------|-----------------|------------|------------------|------------|--------------|------------|-------------------|------------|--------------------|------------|
| ** **                             | ** ** | ** **      | ** ** | ** **       | ** ** | **General**  | ** ** | **Other**         | ** ** | **Total**          | ** ** |
| ** **                             | ** ** | **Common**      | ** ** | **Subordinated** | ** ** | **Partner**  | ** ** | **Comprehensive** | ** ** | **Partners’** | ** ** |
| ** **                             | ** ** | **Unitholders** | ** ** | **Unitholders**  | ** ** | **Interest** | ** ** | **Income**        | ** ** | **Equity**         | ** ** |
| **Balance December 31, 2006**     |       | $               | 104,212    |             | $          | (13,672      | )          | $                 | (560       | )                  | $          | 13,259 |   | $ | 103,239 |   |
| Comprehensive income:                  |       |            |       |             |       |         |       |              |       |               |       |
| Net income                             |       | 16,109          |       | 16,109           |       | 657          |       | —            |       | 32,875             |       |
| Other  comprehensive income:           |       |            |       |             |       |         |       |              |       |               |       |
| Unrealized gain  on NYMEX shares       |       | —          |       | —           |       | —       |       | (12,837           | )          | (12,837            | )          |
| Adjustment—SFAS No. 158 |       | —          |       | —           |       | —       |       | (52               | )          | (52                | )          |
| Total other  comprehensive income      |       | 16,109          |       | 16,109           |       | 657          |       | (12,889           | )          | (19,986            | )          |
| Distributions to  partners             |       | (2,567          | )          | (2,567           | )          | (105         | )          | —            |       | (5,239             | )          |
| **Balance March 31, 2007**             |       | $               | 117,754    |             | $          | (130         | )          | $                 | (8         | )                  | $          | 370 |   | $ | 117,986 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

4

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** **

**GLOBALPARTNERS LPNOTES TO FINANCIAL STATEMENTS(Unaudited)**

**Note 1.**                      Organization and Basis ofPresentation

**Organization**

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

The Partnershiphas four operating subsidiaries:  GlobalCompanies LLC, its subsidiary, Glen Hes Corp., Global Montello Group Corp. andChelsea Sandwich LLC (the four operating subsidiaries, collectively, the “Companies”).  The Companies (other than Glen Hes Corp.) arewholly owned by Global Operating LLC, a wholly owned subsidiary of thePartnership.  In addition, in January2007, GLP Finance Corp. (“GLP Finance”) was incorporated under the laws of theState of Delaware and became a wholly owned subsidiary of the Partnership.  GLP Finance has no material assets orliabilities.  Its activities will belimited to co-issuing debt securities and engaging in other activitiesincidental thereto.

In May of2007, the Partnership issued 1,785,715 unregistered Class B units in a privateplacement.  The Partnership receivedproceeds of $50.0 million.  The Class Bunits are convertible into common units on a one-for-one basis upon theapproval of a majority of the votes cast by common unitholders, provided thatthe total number of votes cast is at least a majority of common units eligibleto vote (excluding common units held by Global GP LLC, the Partnership’sgeneral partner (the “General Partner”), and its affiliates).  In addition, the Class B units areconvertible into common units on a one-for-one basis if the New York StockExchange amends its requirements to eliminate the common unitholder approvalrequirement.  In connection with theissuance of the Class B units, the Partnership agreed to a discount in thepurchase price of approximately $0.8 million, which is the amount equal to theproduct of (i) the number of issued and outstanding Class B units, times (ii)$0.4650, the amount of the Partnership’s first quarter per unit distribution tobe paid to the common and subordinated unitholders on May 15, 2007.  Such discount will be paid by the Partnershipto the purchasers of the Class B units substantially contemporaneously with thepayment of the Partnership’s first quarter distribution.  As the issuance of the Class B units andrelated transactions occurred in May of 2007, they are not reflected in theaccompanying financial statements for the three months ended March 31, 2007.

Also in Mayof 2007, the Partnership completed its previously announced acquisition ofthree contiguous refined petroleum product terminals from ExxonMobil Oil Corporationfor cash consideration of approximately $101.5 million.  The Partnership financed the acquisitionthrough an expansion of its credit facility, proceeds from the sale of itsNYMEX Holdings shares and related NYMEX seats and the $50.0 million privateplacement of Class B units discussed above. As the acquisition of these three terminals and related transactionsoccurred in May of 2007, they are not reflected in the accompanying financialstatements for the three months ended March 31, 2007.

As of May 9, 2007,the Partnership’s 1.73% general partner interest is held by the GeneralPartner.  The General Partner, which isowned by affiliates of the Slifka family, manages the Partnership’s operationsand activities and employs its officers and substantially all of itspersonnel.  Affiliates of the GeneralPartner, including its directors and executive officers, own 60,224 commonunits and 5,642,424 subordinated units, representing a combined 42.9% limitedpartner interest.

**Basis of Presentation**

***Interim Financial Statements***

**Theaccompanying consolidated financial statements as of March 31, 2007 andDecember 31, 2006 and for the three months ended March 31, 2007 and 2006reflect the accounts of the Partnership. All intercompany balances and transactions have been eliminated.**

5

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** **

The accompanying unaudited consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States (“GAAP”) and reflect all adjustments(consisting only of normal recurring adjustments) which are, in the opinion ofmanagement, necessary for a fair presentation of the financial condition andoperating results for the interim periods. The interim financial information, which has been prepared pursuant tothe rules and regulations of the Securities and Exchange Commission (“SEC”),should be read in conjunction with the consolidated financial statements forthe year ended December 31, 2006 and notes thereto contained in the Partnership’sAnnual Report on Form 10-K.  The resultsof operations for the three months ended March 31, 2007 are not necessarilyindicative of the results of operations that will be realized for the entireyear ending December 31, 2007.

As demand 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.

The balance sheet at December 31, 2006 has beenderived from the audited financial statements and footnotes thereto included inthe Partnership’s Annual Report on Form 10-K for the year ended December 31,2006.

**Note 2.**                      Reclassification

Certain prior year amounts in the consolidatedfinancial statements and accompanying notes have been reclassified to conformto the current year presentation.

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

The computation ofnet income per limited partner unit is based on the weighted average number ofcommon and subordinated units, or limited partner units, outstanding during theyear.  Basic and diluted net income perlimited partner unit are determined by dividing net income after deducting theamount allocated to the general partner interest (including incentivedistributions on the incentive distribution rights held by the General Partnerin excess of its 2% general partner interest) by the weighted average number ofoutstanding limited partner units during the period in accordance with EmergingIssues Task Force (“EITF”) 03-06, “Participating Securities and theTwo-Class Method under FASB Statement No. 128” (“EITF 03-06”).  EITF 03-06 addresses the computation ofearnings per share (in the Partnership’s case, net income per limited partnerunit) by an entity that has issued securities other than common stock (in thePartnership’s case, limited partner units) that contractually entitle theholder to participate in dividends and earnings of the entity when, and if, itdeclares dividends on its common stock (in the Partnership’s case,distributions on its limited partner units). Essentially, EITF 03-06 provides that in any accounting periodwhere the Partnership’s aggregate net income exceeds its aggregate distributionfor such period, the Partnership is required to present net income per limitedpartner unit as if all of the earnings for the periods were distributed,regardless of whether those earnings would actually be distributed during aparticular period from an economic or practical perspective.  EITF 03-06 does not impact thePartnership’s overall net income or other financial results; however, forperiods in which the Partnership’s aggregate net income exceeds its aggregatedistributions for such period, it will have the impact of reducing the earningsper limited partner unit.  This resultoccurs as a larger portion of the Partnership’s aggregate earnings is allocatedto the incentive distribution rights held by the General Partner, as ifdistributed, even though the Partnership makes cash distributions on the basisof cash available for distributions, not earnings, in any given accountingperiod.  In accounting periods whereaggregate net income does not exceed aggregate distributions for such period,EITF 03-06 does not have any impact on the Partnership’s net incomeper limited partner unit calculation.

6

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** **

The following setsforth the net income allocation and per unit data using this method for theperiods presented (in thousands, except per unit data):

|                                                            | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                 | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                                       |       |                                             |       |   |   |
| Net income                                                 |       | $                                                | 32,875     |   | $ | 12,688 |   |
| Less:                                                      |       |                                             |       |   |   |
| General Partner’s 2% general partner interest         |       | (657                                             | )          | (254 | ) |
| Net income available to limited partners                   |       | 32,218                                           |       | 12,434 |   |
| Dilutive impact of theoretical distribution of  earnings   |       | (12,405                                          | )          | (2,872 | ) |
| Net income available to limited partners under EITF  03-06 |       | $                                                | 19,813     |   | $ | 9,562 |   |
|                                                       |       |                                             |       |   |   |
|                                                       |       |                                             |       |   |   |
| Per unit data:                                             |       |                                             |       |   |   |
| Net income available to limited partners                   |       | $                                                | 2.85       |   | $ | 1.10 |   |
| Dilutive impact of theoretical distribution of  earnings   |       | (1.10                                            | )          | (0.25 | ) |
| Net income available to limited partners under EITF  03-06 |       | $                                                | 1.75       |   | $ | 0.85 |   |
|                                                       |       |                                             |       |   |   |
| Weighted average  limited partner units outstanding        |       | 11,285                                           |       | 11,285 |   |

 

During the three monthsended March 31, 2007 and 2006, the Partnership did not declare cashdistributions that resulted in incentive distributions to the General Partner,as the holder of the incentive distribution rights, as indicated above.  On April 24, 2007, the board of directors ofthe General Partner declared a quarterly cash distribution of $0.4650 per unitfor the period from January 1, 2007 through March 31, 2007.  This distribution resulted in the Partnershipreaching its second target distribution with respect to the incentivedistribution rights held by the General Partner for the quarter ended March 31,2007.  See Note 9, “Cash Distributions”for further information.

**Note 4.**                      Inventories

The Partnershiphedges substantially all of its inventory purchases through futures and swapagreements.  Hedges are executed wheninventory is purchased and are identified with that specific inventory.  Changes in the fair value of these contracts,as well as the offsetting gain or loss on the hedged inventory item, arerecognized currently in earnings.  Allhedged inventory is valued using the lower of cost, as determined by specificidentification, or market.  Prior tosale, hedges are removed from specific barrels of inventory, and the thenunhedged inventory is sold and accounted for on a first-in, first-outbasis.  Inventories consisted of thefollowing (in thousands):

 

|                                                     | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                                                |       |                     |       |                        |       |
| Distillates:  home heating oil, diesel and kerosene |       | $                        | 91,657     |                        | $          | 235,266 |   |
| Residual oil                                        |       | 19,524                   |       | 35,226                      |       |
| Gasoline                                            |       | 23,319                   |       | 9,870                       |       |
| Blend stock                                         |       | 7,808                    |       | 7,705                       |       |
| Total                                               |       | $                        | 142,308    |                        | $          | 288,067 |   |

 

The decrease of $145.8 million was primarily due tolower distillates and residual oil inventory on hand as the Partnershipapproached the end of its heating season.

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** **

In addition to itsown inventory, the Partnership has exchange agreements with unrelatedthird-party suppliers, whereby it may draw inventory from these other suppliersand suppliers may draw inventory from the Partnership.  Positive exchange balances are accounted foras accounts receivable.  Negativeexchange balances are accounted for as accounts payable.  Exchange transactions are valued usingcurrent quoted market prices.  The impactof exchange agreements was not material to the Partnership’s financialstatements at March 31, 2007 and December 31, 2006.

**Note 5.**                      Derivative Financial Instruments

**ThePartnership accounts for its derivatives in accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 133, “Accounting for DerivativeInstruments and Hedging Activities,” as amended (“SFAS No. 133”).  SFAS No. 133 establishes accounting andreporting standards for derivative instruments and hedging activities andrequires that an entity recognize derivatives as either assets or liabilitieson the balance sheet and measure the instruments at fair value.  Changes in the fair value of the derivativeare to be recognized currently in earnings, unless specific hedge accountingcriteria are met.**

**The fairvalue of the Partnership’s derivatives is determined through the use ofindependent markets and is based upon the prevailing market prices of suchinstruments at the date of valuation. The Partnership enters into futures contracts for the receipt ordelivery of refined petroleum products in future periods.  The contracts are entered into in the normalcourse of business to reduce risk of loss of inventory on hand, which couldresult through fluctuations in market prices. Changes in the fair value of these contracts, as well as the offsettinggain or loss on the hedged inventory item, are recognized currently inearnings.  Ineffectiveness related tothese hedging activities was immaterial at March 31, 2007.**

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

The compositionand fair value of derivative instruments relating to forward fixed contracts onthe Partnership’s balance sheet consisted of the following (in thousands):

|                                | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------------|------------|--------------------------|------------|-----------------------------|------------|
|                           |       |                     |       |                        |       |
| Futures  contracts             |       | $                        | (12        | )                           | $          | 57,571 |   |
| Swaps, options  and other, net |       | (45                      | )          | 8,544                       |       |
|                           |       | $                        | (57        | )                           | $          | 66,115 |   |

 

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 generallypurchased and sold at fixed prices and quantities.  Current price quotes from actively tradedmarkets are used in all cases to determine the contracts’ fair value.  Changes in the fair value of these contractsare recognized currently in earnings as an increase or decrease in cost ofsales.

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** **

The Partnershipformally documents all relationships between hedging instruments and hedgeditems after its risk management objectives and strategy for undertaking thehedge are determined.  The Partnershipcalculates hedge effectiveness on a quarterly basis.  This process includes specific identificationof the hedging instrument and the hedged transaction, the nature of the riskbeing hedged and how the hedging instrument’s effectiveness will 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.

The Partnershiphas a daily margin requirement with its broker based on the prior day’s marketresults on open futures contracts.  Therequired brokerage margin balance was $1.4 million and $0.6 million at March31, 2007 and December 31, 2006, respectively.

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

**Note 6.**                      Debt

In August 2006,the Partnership amended its four-year senior secured credit agreement (the “CreditAgreement”) to increase the permanent working capital revolving credit facilitycommitment by $100.0 million for total available commitments of $600.0** **million.  At March31, 2007, there were three facilities under the Credit Agreement that includedthe following:

·              aworking capital revolving credit facility to be used for working capitalpurposes and letters of credit in the principal amount equal to the lesser ofthe Partnership’s borrowing base and $550.0 million, of which two $50.0 millionseasonal overline facilities are available each year only during the periodbetween September 1st and June 30th;

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

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

At March 31, 2007,borrowings under the Partnership’s working capital revolving credit,acquisition and revolving credit facilities bore interest at the Partnership’soption at (1) the Eurodollar rate, plus 1%, 13⁄4% and 11⁄2%, respectively, (2) thecost of funds rate, plus 1%, 13⁄4% and 11⁄2%, respectively, or (3) the bank’s baserate.  The Partnership incurs a letter ofcredit fee of 1% per annum for each letter of credit issued.  In addition, the Partnership incurs acommitment fee on the unused portion of the three facilities under the CreditAgreement (including the unused portion of either of the seasonal overlinefacilities exercised by the Partnership) at a rate of 25 basis points perannum, a facility fee of 10 basis points per annum on any unexercised seasonaloverline facility during the period between September 1st and June 30th and a seasonal overline fee of $30,000 eachtime the Partnership elects to exercise either of the seasonal overlinefacilities.

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** **

The Partnershipclassifies a portion of its revolving line of credit as a long-term liabilitybecause the Partnership has a multi-year, long-term commitment from its bankgroup.  The long-term portion of therevolving line of credit was $69.9 million and $82.0 million at March 31, 2007and December 31, 2006, respectively, representing the amounts expected to beoutstanding during the year.  Inaddition, the Partnership classifies a portion of its revolving line of creditas a current liability because it repays amounts outstanding and reborrowsfunds based on its working capital requirements.  The current portion of the revolving line ofcredit was approximately $53.8 million and $188.7 million at March31, 2007 and December 31, 2006, respectively, representing the amount thePartnership expects to pay down during the course of the year.

At March 31, 2007,availability under the Credit Agreement was reduced by the outstanding balanceunder the working capital revolving credit facility of approximately $123.7** **million and by letters of credit totalingapproximately $45.2** **million.  The average interest rate for the threemonths ended March 31, 2007 was 6.3%.

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

The CreditAgreement also imposes covenants that require the Partnership to maintaincertain minimum working capital amounts, capital expenditure limits, a minimumEBITDA ratio, a minimum interest coverage ratio and a maximum leverageratio.  The Partnership was in compliancewith these covenants at March 31, 2007.

The CreditAgreement limits distributions by the Partnership to its unitholders to theamount of the Partnership’s available cash and permits borrowings to fund suchdistributions only under the $15.0 million revolving credit facility.  The revolving credit facility is subject toan annual “clean-down” period, requiring the Partnership to reduce the amountoutstanding under the revolving credit facility to $0 for 30 consecutivecalendar days in each calendar year.

As previouslydisclosed in a Form 8-K filed by the Partnership on April 26, 2007, the CreditAgreement was amended to, among other things:

·              increasethe Partnership’s $35.0 million acquisition facility by $50.0 million to $85.0million;

·              possiblyincrease, at the request of the Partnership and provided that no Default orEvent of Default (as defined in the Credit Agreement) then exists:  (1) the acquisition facility by up to another$50.0 million, for a total acquisition facility of up to $135.0 million; and(2) the working capital revolving credit facility by up to another $100.0million, for a total working capital revolving credit facility of up to $650.0million.  Any such request for anincrease by the Partnership must be in a minimum amount of $5.0 million, and nomore than three such requests may be made for each facility;

·              extendthe term of the Credit Agreement to April 22, 2011;

·              reducethe margins that are added to the Eurodollar rate for interest on indebtednessunder the Credit Agreement from a range of 1.00% to 1.75% per annum to a rangeof 1.00% to 1.50% per annum, depending on which facility is being used;

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** **

·              reducethe minimum EBITDA (as defined in the Credit Agreement) to interest coverageratio from 2.75:1:00 to 2.50:1.00; and

·              increasethe threshold amount in excess of which the Partnership and guarantors are notpermitted to make or to become legally obligated to make aggregate permittedcapital expenditures in any fiscal year from $4.0** **millionto $10.0 million.

**Note 7.**                      Employee Benefit Plan withRelated Party

The General Partner employs substantially all of thePartnership’s employees and charges the Partnership for their services.  The Partnership also reimburses the GeneralPartner for its contributions under the General Partner’s 401(k) Savings andProfit Sharing Plan and the General Partner’s qualified and non-qualifiedpension plans.  The Partnership’s netperiodic benefit cost for its defined benefit pension plan consisted of thefollowing components (in thousands):

|                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------|------------|--------------------------------------------------|------------|
| ** **                      | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                            |       |                                             |       |   |   |
| Service cost                    |       | $                                                | 204        |   | $ | 191 |   |
| Interest cost                   |       | 163                                              |       | 150 |   |
| Expected return  on plan assets |       | (158                                             | )          | (145 | ) |
| Net periodic  benefit cost      |       | $                                                | 209        |   | $ | 196 |   |

 

**Note 8.**                      Related Party Transactions

The Partnershipentered into a Second Amended and Restated Terminal Storage Rental andThroughput Agreement which, among other things, extended the term of the thencurrent non-cancelable terminal facility agreement with Global Petroleum Corp.(“GPC”) through December 2013.  Theagreement is accounted for as an operating lease.  The expenses under this agreement were $2.1** **million and $2.0** **millionfor the three months ended March** **31,** **2007 and 2006, respectively.

Pursuant to theAmended and Restated Services Agreement with GPC, GPC provides certain terminaloperating management services to the Partnership and uses certainadministrative, accounting and information processing services of thePartnership.  The expense from theseservices was approximately $18,000 and $17,000 for the three months ended March31, 2007 and 2006, respectively.  Theseaffiliate charges were recorded in selling, general and administrative expensesin the accompanying statements of income. The agreement is for an indefinite term, and either party may terminateits receipt of some or all of the services thereunder upon 180 day’s notice atany time after January 1, 2008.

Pursuant to theAmended and Restated Services Agreement, the Partnership also provides certainadministrative, accounting and information processing services, and the use ofcertain facilities, to Alliance Energy Corp. (“Alliance”), an affiliate of thePartnership that is 90% owned by members of the Slifka family.  The income from these services wasapproximately $132,000 and $80,000 for the three months ended March 31, 2007and 2006, respectively.  Theseintercompany fees were recorded as an offset to selling, general andadministrative expenses in the accompanying statements of income.  The agreement is for an indefinite term, andAlliance may terminate its receipt of some or all of the services thereunderupon 180 day’s notice at any time after January 1, 2008.

The Partnershipsells refined petroleum products to Alliance at arm’s length and at prevailingmarket prices at the time of delivery. Sales to Alliance were $5.8 million and $5.0 million for the threemonths ended March 31, 2007 and 2006, respectively.

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The GeneralPartner employs substantially all of the Partnership’s employees and chargesthe Partnership for their services.  Theexpenses for the three months ended March 31, 2007 and 2006, including payroll,payroll taxes and bonus accruals, were $8.3 million and $6.7 million,respectively.  The Partnership alsoreimburses the General Partner for its contributions under the General Partner’s401(k) Savings and Profit Sharing Plan and the General Partner’s qualified andnon-qualified pension plans.

The table below presents trade receivables withAlliance, receivables incurred in connection with the services agreementsbetween Alliance and GPC and the Partnership, as the case may be, andreceivables from the General Partner (in thousands):

|                                           | ** ** | **March 31, 2007** | ** ** | **December 31,  2006** | ** ** |
|-------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                      |       |                         |       |                        |       |
| Receivables from  Alliance                |       | $                            | 1,628      |                        | $          | 1,793 |   |
| Receivables from GPC                      |       | 43                           |       | 81                          |       |
| Receivables from the  General Partner (1) |       | 178                          |       | 114                         |       |
| Total                                     |       | $                            | 1,849      |                        | $          | 1,988 |   |

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(1)             Receivables from the General Partner reflectthe Partnership’s prepayment of payroll taxes and payroll accruals to theGeneral Partner.

**Note 9.**                      Cash Distributions

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

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

The Partnershipwill make distributions of available cash from operating surplus for anyquarter during the subordination period as defined in its partnership agreementin the following manner: firstly, 98% to the common unitholders, pro rata, and2% to the General Partner, until the Partnership distributes for eachoutstanding common unit an amount equal to the minimum quarterly distributionfor that quarter; secondly, 98% to the common unitholders, pro rata, and 2% tothe General Partner, until the Partnership distributes for each outstandingcommon unit an amount equal to any arrearages in payment of the minimumquarterly distribution on the common units for any prior quarters during the subordinationperiod; thirdly, 98% to the subordinated unitholders, pro rata, and 2% to theGeneral Partner, until the Partnership distributes for each subordinated unitan amount equal to the minimum quarterly distribution for that quarter; andthereafter, cash in excess of the minimum quarterly distributions isdistributed to the unitholders and the General Partner based on the percentagesas provided below.

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Asthe holder of the incentive distribution rights, the General Partner isentitled to incentive distributions if the amount that the Partnershipdistributes with respect to any quarter exceeds specified target levels shownbelow:
| ** **                     | ** ** | **Total Quarterly Distribution** | ** ** | **Marginal Percentage Interest in  Distributions** |
|--------------------------------|------------|--------------------------------------------|------------|-------------------------------------------------------------------|
| ** **                     | ** ** | **Target Amount**                     | ** ** | **Unitholders**                                                   | ** ** | **General Partner** |
| Minimum Quarterly Distribution |       | $0.4125                                    |       | 98%                                                               |   | 2% |
| First Target Distribution      |       | Up to $0.4625                              |       | 98%                                                               |   | 2% |
| Second Target Distribution     |       | above $0.4625 up  to $0.5375               |       | 85%                                                               |   | 15% |
| Third Target Distribution      |       | above $0.5375 up  to $0.6625               |       | 75%                                                               |   | 25% |
| Thereafter                     |       | above $0.6625                              |       | 50%                                                               |   | 50% |

 

ThePartnership paid the following cash distribution during 2007 (in thousands,except per unit data):

| Cash Distribution Payment Date | ** ** | **Per Unit  Cash  Distribution** | ** ** | **Common  Units** | ** ** | **Subordinated  Units** | ** ** | **General  Partner** | ** ** | **Total Cash  Distribution** | ** ** |
|-------------------------------------|------------|---------------------------------------|------------|-------------------|------------|-------------------------|------------|----------------------|------------|-----------------------------------|------------|
| 02/14/07                            |       | $                                     | 0.4550     |              | $          | 2,567                   |       | $                    | 2,567      |                              | $          | 105 |   | $ | 5,239 |   |
|                                     |            |                                       |            |                   |            |                         |            |                      |            |                                   |            |  |  |  |  |  |

 

In addition, onApril 24, 2007, the board of directors of the General Partner declared aquarterly cash distribution of $0.4650 per unit for the period from January 1,2007 through March 31, 2007 ($1.86 per unit on an annualized basis) to thePartnership’s common and subordinated unitholders of record as of the close ofbusiness May 4, 2007.  This distributionresulted in the Partnership reaching its second target distribution for thequarter ended March 31, 2007.

**Note 10.**               Segment Reporting

The Partnership isa wholesale and commercial distributor of gasoline, distillates and residualoil whose business is organized within two operating segments, Wholesale andCommercial, based on the way the chief operating decision maker (CEO) managesthe business and on the similarity of customers and expected long-termfinancial performance of each segment. The accounting policies of the segments are the same as those describedin Note 2, “Summary of Significant Accounting Policies,” in the Partnership’sAnnual Report on Form 10-K for the year ended December 31, 2006.

In the Wholesalesegment, the Partnership sells gasoline, home heating oil, diesel, kerosene andresidual oil to unbranded retail gasoline stations and other resellers oftransportation 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.

The Commercialsegment includes (1) sales and deliveries of unbranded gasoline, homeheating oil, diesel, kerosene and residual oil and small amounts of natural gasto customers in the public sector and to large commercial and industrialcustomers, either through a competitive bidding process or through contracts ofvarious terms, and (2) sales of custom blended distillates and residualoil delivered by barges or from a terminal dock.  Commercial segment customers include federaland state agencies, municipalities, large industrial companies, many autonomousauthorities such as transportation authorities and water resource authorities,colleges and universities and a limited group of small utilities.  Unlike the Wholesale segment, in theCommercial segment, the Partnership generally arranges the delivery of theproduct to the customer’s designated location, typically hiring third-partycommon carriers to deliver the product.

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The Partnershipevaluates segment performance based on net product margins before allocationsof 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 reasonablypossible for the Partnership to allocate the components of operating costs andexpenses between the reportable segments. Additionally, due to the commingled nature and uses of the Partnership’sassets, it is not reasonably possible for the Partnership to allocate assetsbetween the two segments.  There were nointersegment sales for any of the periods presented below.

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

|                                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                  | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Wholesale Segment:**                      |       |                                             |       |   |   |
| Sales                                       |       | $                                                | 1,440,610  |   | $ | 1,196,979 |   |
| Net product  margin (1)                     |       |                                             |       |   |   |
| Distillates                                 |       | $                                                | 26,741     |   | $ | 19,597 |   |
| Gasoline                                    |       | 1,618                                            |       | 3,236 |   |
| Residual oil                                |       | 9,884                                            |       | 4,654 |   |
| Total                                       |       | $                                                | 38,243     |   | $ | 27,487 |   |
| **Commercial Segment:**                     |       |                                             |       |   |   |
| Sales                                       |       | 132,566                                          |       | 154,044 |   |
| Net product  margin (1)                     |       | 4,600                                            |       | 5,136 |   |
| **Combined sales and net product  margin:** |       |                                             |       |   |   |
| Sales                                       |       | $                                                | 1,573,176  |   | $ | 1,351,023 |   |
| Net product  margin (1)                     |       | $                                                | 42,843     |   | $ | 32,623 |   |
| Depreciation  allocated to cost of sales    |       | 591                                              |       | 406 |   |
| **Combined gross profit**                   |       | $                                                | 42,252     |   | $ | 32,217 |   |

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(1)             Netproduct margin is a non-GAAP financial measure used by management and externalusers of the Partnership’s financial statements to assess the Partnership’sbusiness.  The table above reconciles netproduct margin on a combined basis to gross profit, a directly comparable GAAPmeasure.

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A reconciliation of thetotals reported for the reportable segments to the applicable line items in theconsolidated financial statements is as follows (in thousands):
| ** **                                                              | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                              | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Combined gross profit**                                               |       | $                                                | 42,252     |   | $ | 32,217 |   |
| **Operating costs and expenses  not allocated to reportable segments:** |       |                                             |       |   |   |
| Selling, general  and administrative expenses                           |       | 13,406                                           |       | 10,928 |   |
| Operating  expenses                                                     |       | 5,890                                            |       | 5,551 |   |
| Amortization  expenses                                                  |       | 358                                              |       | 406 |   |
| **Total operating costs and  expenses**                                 |       | 19,654                                           |       | 16,885 |   |
| Operating income                                                        |       | 22,598                                           |       | 15,332 |   |
| Interest expense                                                        |       | (3,316                                           | )          | (2,320 | ) |
| Other income                                                            |       | —                                           |       | 356 |   |
| Gain on sale of  investment                                             |       | 14,118                                           |       | — |   |
| Income tax  expense                                                     |       | (525                                             | )          | (680 | ) |
| **Net income**                                                          |       | $                                                | 32,875     |   | $ | 12,688 |   |

 

There were noforeign sales for the three months ended March 31, 2007 and 2006.  The Partnership has no foreign assets.

**Note 11.**               Capital Expenditures

The Partnership’sterminalling operations require investments to expand, upgrade or enhanceexisting operations and to meet environmental and operations regulations.  The Partnership’s capital requirementsprimarily consist of maintenance capital expenditures and capital improvementexpenditures.  Maintenance capitalexpenditures represent capital expenditures to replace partially or fullydepreciated assets to maintain the operating capacity of, or sales generatedby, existing assets and extend their useful lives such as expenditures requiredto maintain equipment reliability, tankage and pipeline integrity and safety,and to address environmental regulations. The Partnership had approximately $0.8 million and $0.1 million inmaintenance capital expenditures for the three months ended March 31, 2007 and2006, respectively.  Repair andmaintenance expenses associated with existing assets that are minor in natureand do not extend the useful life of existing assets are charged to operatingexpenses as incurred.

Capitalimprovement expenditures include expenditures to acquire assets to grow thePartnership’s business and to expand existing facilities, such as projects thatincrease operating capacity by increasing tankage or adding terminals.  The Partnership had approximately $0.1million and $0.7 million in capital improvement expenditures for the threemonths ended March 31, 2007 and 2006, respectively, to increase its operatingcapacity and capabilities.

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**Note 12.**               Investment in Equity Securities

The Partnershipheld an investment in NYMEX Holdings, Inc. which was accounted for underthe provisions of SFAS No. 115, “Accounting for Certain Investments inDebt and Equity Securities.”  AtDecember 31, 2006, the Partnership recorded the investment at a fair valueof $13.9 million, based on its quoted market price, and classified the securityas available for sale in the accompanying balance sheet.  The Partnership’s unrealized gain of $12.8million was recorded in other comprehensive income.  Additionally, the Partnership recordedrelated dividend income of $356,000 in the accompanying statements of incomefor the three months ended March 31, 2006.

On March 6, 2007,the Partnership sold its investment in NYMEX Holdings, Inc. along with itsNYMEX seats for approximately $15.3 million and realized a gain ofapproximately $14.1 million in the statement of income for the quarter endedMarch 31, 2007.

**Note 13.**               Income Taxes

Global MontelloGroup Corp. is a taxable entity for federal and state income tax purposes.  Current and deferred income taxes arerecognized on the separate earnings of Global Montello Group Corp. for thethree months ended March 31, 2007 and 2006. The after-tax earnings of Global Montello Group Corp. are included inthe earnings of the Partnership. Deferred income taxes reflect the net tax effects of temporarydifferences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes forGlobal Montello Group Corp.

On January 1,2007, the Partnership adopted the provisions of FASB issued Interpretation No.48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASBStatement No. 109” (“FIN 48”).  FIN 48clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with SFAS No. 109, “Accountingfor Income Taxes.”  It also prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return, and it provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure andtransition.

The Partnershipperformed an evaluation for the tax years ended December 31, 2006 and 2005, thetax years that remain subject to examination by major tax jurisdictions as ofMarch 31, 2007.  Based on suchevaluation, the Partnership concluded that there were no significant uncertaintax positions requiring recognition in its financial statements as of March 31,2007.  As such, the adoption of FIN 48did not impact the Partnership’s consolidated financial condition, results ofoperations or cash flows.

**Note 14.**               Recent Accounting Pronouncements

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

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**Note 15.**               Subsequent Events

As previouslydisclosed in a Form 8-K filed on April 24, 2007, the General Partner’s board ofdirectors declared a quarterly cash distribution of $0.4650 per unit for theperiod from January 1, 2007 through March 31, 2007 ($1.86 per unit on anannualized basis).  On May 15, 2007, thePartnership will pay this cash distribution to its common and subordinatedunitholders of record as of the close of business May 4, 2007.

As previouslydisclosed in a Form 8-K filed on April 26, 2007, the Partnership and itssubsidiaries, except for GLP Finance Corp., and the General Partner enteredinto a Third Amendment to Credit Agreement and Accession Agreement whichamended the Credit Agreement dated October 4, 2005, as amended.

On May 9,2007, the Partnership issued 1,785,715 unregistered Class B units in a privateplacement.  The Partnership receivedproceeds of $50.0 million.  The Class Bunits are convertible into common units on a one-for-one basis upon theapproval of a majority of the votes cast by common unitholders, provided thatthe total number of votes cast is at least a majority of common units eligibleto vote (excluding common units held by the Partnership’s general partner andits affiliates).  In addition, the ClassB units are convertible into common units on a one-for-one basis if the NewYork Stock Exchange amends its requirements to eliminate the common unitholderapproval requirement.  In connection withthe issuance of the Class B units, the Partnership agreed to a discount in thepurchase price of approximately $0.8 million, which is the amount equal to theproduct of (i) the number of issued and outstanding Class B units, times (ii)$0.4650, the amount of the Partnership’s first quarter per unit distribution tobe paid to the common and subordinated unitholders on May 15, 2007.  Such discount will be paid by the Partnershipto the purchasers of the Class B units substantially contemporaneously with thepayment of the Partnership’s first quarter distribution.

Also in Mayof 2007, the Partnership completed its previously announced acquisition ofthree contiguous refined petroleum product terminals from ExxonMobil OilCorporation for cash consideration of approximately $101.5 million.  The Partnership financed the acquisitionthrough an expansion of its credit facility, proceeds from the sale of itsNYMEX Holdings shares and related NYMEX seats and the $50.0 million privateplacement of Class B units discussed above.

OnMay 10, 2007, the Partnership executed an interest rate derivativecontract. The purpose of the contract is to provide the Partnership protectionagainst future interest rate increases with respect to $100.0 million ofborrowings under the Partnership’s Credit Agreement. The effective date of theinstrument is May 14, 2007 and it expires on the maturity date of thePartnership’s Credit Agreement.

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** **

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

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

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

·              Warmer weatherconditions could adversely affect our results of operations and cash availablefor distribution to our unitholders.

·              Our risk managementpolicies cannot eliminate all commodity risk. In addition, any noncompliance with our risk management policies couldresult in significant financial losses.

·              We are exposed totrade credit risk in the ordinary course of our business activities.

·              Due to our lack ofasset and geographic diversification, adverse developments in the terminalsthat we use or in our operating areas could reduce our ability to makedistributions to our unitholders.

·              We are exposed toperformance risk in our supply chain.

·              Our general partnerand its affiliates have conflicts of interest and limited fiduciary duties,which may permit them to favor their own interests to the detriment ofunitholders.

·              Unitholders havelimited voting rights and are not entitled to elect our general partner or itsdirectors or initially to remove our general partner without its consent, whichcould lower the trading price of our common units.

·              Unitholders may berequired to pay taxes on their share of our income even if they do not receiveany cash distributions from us.

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

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 made, other than as required by law, andwe undertake no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise.

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**Overview**

***General***

Weown, control or have access to one of the largest terminal networks of refinedpetroleum products in the Northeast.  Weare one of the largest wholesale distributors of gasoline, distillates (such ashome heating oil, diesel and kerosene) and residual oil to wholesalers,retailers and commercial customers in the Northeast.  During the first three months of 2007, wesold approximately $1.6 billion of refined petroleum products and small amountsof natural gas.

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

***Products and Operational Structure***

Ourproducts include gasoline, distillates and residual oil.  We sell gasoline to unbranded retail gasolinestations and resellers.  The distillateswe sell are used primarily for fuel for trucks and off-road constructionequipment and for space heating of residential and commercial buildings.  We sell residual oil to major housing units,such as public housing authorities, colleges and hospitals and large industrialfacilities that use processed steam in their manufacturing processes.  In addition, we sell bunker fuel, which wecan custom blend, to cruise ships, bulk carriers and fishing fleets.

Ourbusiness is divided into two segments:

·              *Wholesale.*  Thissegment includes sales of gasoline, distillates and residual oil to unbrandedretail gasoline stations and other resellers of transportation fuels, homeheating oil retailers and wholesale distributors.

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

Ourbusiness activities are substantially comprised of purchasing, terminalling,storing and selling refined petroleum products. We believe that the combination of our terminalling and storageactivities, together with our marketing activities, provides a balance that hasa stabilizing effect on our results of operations and cash flow.  Our results of operations are less weathersensitive than they have been in the past. The increase in the non-weather sensitive components of our businesshelps to partially offset the economic impact that warmer weather conditionsmay have on our home heating oil and residual oil sales.  In addition, substantial portions of ourheating oil are sold on a forward fixed basis. 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 month for delivery to customers at higher prices in future months.  In a backwardated market (when product pricesfor future deliveries are lower than for current deliveries) because of ourhigh turnover of inventory, we are able to minimize our inventories andcommodity risk while attempting to maintain or increase net product margins.

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***Outlook***

Thissection identifies certain risks and certain economic or industry-wide factorsthat may affect our financial performance and results of operations in thefuture, both in the short-term and in the long-term.  Our results of operations and financialcondition depend, in part, upon the following:

·              *We commit substantial resourcesto pursuing acquisitions, though there is no certainty that we willsuccessfully complete any acquisitions or receive the economic results weanticipate from completed acquisitions.*  Consistent with our businessstrategy, we are continuously engaged in discussions with potential sellers ofterminalling, storage and/or marketing assets and related businesses.  In an effort to prudently and economicallyleverage our asset base, knowledge base and skill sets, management has alsoexpanded its efforts to pursue businesses that are closely related to orsignificantly intertwined with our existing lines of business.  Our growth may depend on our ability to makeaccretive acquisitions.  We may be unableto make such accretive acquisitions for a number of reasons, including, but notlimited to, the following:  (1) we areunable to identify attractive acquisition candidates or negotiate acceptablepurchase contracts with them; (2) we are unable to raise financing for suchacquisitions on economically acceptable terms; or (3) we are outbid bycompetitors.  In addition, we mayconsummate acquisitions that at the time of consummation we believe will beaccretive, 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 current or future acquisition efforts will be successfulor that any such acquisition will be completed on terms that are favorable tous.

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

·              *Warmer weather conditionscould adversely affect our results of operations and financial condition. *Weather conditions generally have an impact on the demand for both homeheating oil and residual oil.  Because wesupply distributors whose customers depend on home heating oil and residual oilfor space heating purposes during the winter, warmer-than-normal temperaturesduring the first and fourth calendar quarters in one or more regions in whichwe operate can decrease the total volume we sell and the gross profit realizedon those sales.

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

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

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**Resultsof Operations**

***Evaluating Our Results of Operations***

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

*Net Product Margin*

Weview net product margin as an important performance measure of the coreprofitability of our operations.  Wereview net product margin monthly for consistency and trend analysis.  We define net product margin as our salesminus product costs.  Sales include salesof unbranded gasoline, distillates, residual oil and natural gas.  Product costs include the cost of acquiring therefined petroleum products that we sell and all associated costs includingshipping and handling costs to bring such products to the point of sale.  Net product margin is a non-GAAP financialmeasure used by management and external users of the Partnership’s financialstatements to assess the Partnership’s business.

*GrossProfit*

Wedefine gross profit as our sales minus product costs and terminal depreciationexpense allocated to cost of sales. Sales include sales of unbranded gasoline, distillates, residual oil andnatural gas.  Product costs include thecost of acquiring the refined petroleum products that we sell and allassociated costs to bring such products to the point of sale.

*Selling, General and Administrative Expenses*

OurSG&A expenses include marketing costs, corporate overhead, employeesalaries and benefits, pension and 401(k) plan expenses, discretionary bonuses,non-interest financing costs, professional fees and information technologyexpenses.  Employee-related expensesincluding employee salaries, discretionary bonuses and related payroll taxes,and benefits, pension and 401(k) plan expenses are paid by our general partnerwhich, in turn, is reimbursed for these expenses by us.

*Operating Expenses*

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.

*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.

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*AdjustedNet Income Per Diluted Limited Partner Unit*

We use adjustednet income per diluted limited partner unit to measure our financialperformance on a per-unit basis. Adjusted net income per diluted limited partner unit is defined as netincome after adding back the theoretical amount allocated to the generalpartner’s interest as provided under EITF 03-06, “ParticipatingSecurities and the Two-Class Method under FASB Statement No. 128” (“EITF 03-06”),divided by the weighted average number of outstanding diluted common andsubordinated units, or limited partner units, during the period.  Net income per diluted limited partner unitas dictated by EITF 03-06 is theoretical and pro forma in nature and does notreflect the economic probabilities of whether earnings for an accounting periodwould or could be distributed to unitholders. The partnership agreement does not provide for the quarterlydistribution of net income; rather, it provides for the distribution ofavailable cash, which is a contractually defined term that generally means allcash on hand at the end of each quarter after establishment of sufficient cashreserves required to operate our business. Accordingly, the distributions we historically paid and will pay infuture periods are not impacted by net income per diluted limited partner unitas dictated by EITF 03-06.  However,adjusted net income per diluted limited partner unit is a non-GAAP financial measureand should not be considered as an alternative to net income per dilutedlimited partner unit or any other measure of financial performance presented inaccordance with GAAP.  In addition, ouradjusted net income per diluted limited partner unit may not be comparable tothe adjusted net incomer per diluted limited partner unit or similarly titledmeasure of other companies.

*EBITDA, Adjusted EBIDTA and Net Income as Adjusted forOne-time Gains*

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

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

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

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

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

·              the viabilityof acquisitions and capital expenditure projects and the overall rates ofreturn of alternative investment opportunities.

Adjusted EBITDA and net income asadjusted for one-time gains reflect the exclusion of the $14.1 million gain oninvestment in the first quarter of 2007. EBITDA, adjusted EBITDA and net income as adjusted for one-time gainsshould not be considered an alternative to net income, operating income, cashflow from operating activities or any other measure of financial performance orliquidity presented in accordance with GAAP. EBITDA, adjusted EBITDA and net income as adjusted for one-time gainsexclude some, but not all, items that affect net income, and these measures mayvary among other companies.  Therefore,EBITDA, adjusted EBITDA and net income as adjusted for one-time gains may notbe comparable to similarly titled measures of other companies.

*Distributable Cash Flow*

Distributable cash flow also is animportant non-GAAP financial measure for our limited partners since it servesas an indicator of our success in providing a cash return on theirinvestment.  Specifically, this financialmeasure indicates to investors whether or not we are generating cash flow at alevel that can sustain or support an increase in our quarterly cashdistribution.  Distributable cash flow isalso a quantitative standard used by the investment community with respect topublicly traded partnerships.  However,distributable cash flow is a non-GAAP financial measure and 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 Months Ended March 31, 2007 and 2006***

***Duringthe first quarter ended March 31, 2007, we experienced higher volumes in ourtransportation fuels and, aided in part by colder-than-normal temperatures,strong heating oil sales.  Additionally,we benefited from favorable market conditions that enabled us to achieve ahigher net product margin in our wholesale residual oil business as compared tothe same period in 2006.  For the quarterended March 31, 2007 compared to the same period in 2006, prices for gasolineand distillates increased by approximately 9% and 1%, respectively, whileprices for residual oil decreased by 3%. Temperatures were 2% colder than normal for the three months ended March31, 2007, as measured by aggregate heating degree days.***

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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 (dollars in thousands, except per unit amounts):
| ** **                                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                                      |       |                                             |       |   |   |
| Net income as  adjusted for one-time gains (1)            |       | $                                                | 18,757     |   | $ | 12,688 |   |
|                                                      |       |                                             |       |   |   |
| Adjusted net  income per diluted limited partner unit (2) |       | $                                                | 2.85       |   | $ | 1.10 |   |
|                                                      |       |                                             |       |   |   |
| Adjusted EBITDA  (3)                                      |       | $                                                | 23,867     |   | $ | 16,760 |   |
|                                                      |       |                                             |       |   |   |
| Distributable  cash flow (4)                              |       | $                                                | 19,259     |   | $ | 13,656 |   |
|                                                      |       |                                             |       |   |   |
| **Wholesale  Segment:**                                   |       |                                             |       |   |   |
| Volume (gallons)                                          |       | 810,822                                          |       | 688,484 |   |
| Sales                                                     |       | $                                                | 1,440,610  |   | $ | 1,196,979 |   |
| Net product margin (5)                                    |       |                                             |       |   |   |
| Distillates                                               |       | $                                                | 26,741     |   | $ | 19,597 |   |
| Gasoline                                                  |       | 1,618                                            |       | 3,236 |   |
| Residual oil                                              |       | 9,884                                            |       | 4,654 |   |
| Total                                                     |       | $                                                | 38,243     |   | $ | 27,487 |   |
| **Commercial  Segment:**                                  |       |                                             |       |   |   |
| Volume (gallons)                                          |       | 95,550                                           |       | 109,479 |   |
| Sales                                                     |       | 132,566                                          |       | 154,044 |   |
| Net product margin (5)                                    |       | 4,600                                            |       | 5,136 |   |
| **Combined  sales and net product margin:**               |       |                                             |       |   |   |
| Sales                                                     |       | $                                                | 1,573,176  |   | $ | 1,351,023 |   |
| Net product margin (5)                                    |       | $                                                | 42,843     |   | $ | 32,623 |   |
| Depreciation allocated to cost of sales                   |       | 591                                              |       | 406 |   |
| **Combined  gross profit**                                |       | $                                                | 42,252     |   | $ | 32,217 |   |
|                                                      |       |                                             |       |   |   |
| **Weather  conditions:**                                  |       |                                             |       |   |   |
| Normal heating  degree days                               |       | 2,870                                            |       | 2,870 |   |
| Actual heating  degree days                               |       | 2,918                                            |       | 2,635 |   |
| Variance from  normal heating degree days                 |       | 2                                                | %          | (8 | %) |
| Variance from prior  period actual heating degree days    |       | 11                                               | %          | (13 | %) |

----

(1)            Netincome as adjusted for one-time gains is a non-GAAP financial measure which isdiscussed above under “Evaluating Our Operating Results.”  The table below presents a reconciliation ofnet income as adjusted for one-time gains to the most directly comparable GAAPfinancial measure.

(2)            Adjustednet income per diluted limited partner unit is a non-GAAP financial measurewhich is discussed above under “Evaluating Our Operating Results.”  The table below presents a reconciliation ofadjusted net income per diluted limited partner unit to the most directlycomparable GAAP financial measure.

(3)            AdjustedEBITDA is a non-GAAP financial measure which is discussed above under “EvaluatingOur Operating Results.”  The table belowpresents reconciliations of Adjusted EBITDA to the most directly comparableGAAP financial measures.

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

(5)            Netproduct margin is a non-GAAP financial measure which is discussed above under “EvaluatingOur Operating Results.”  The table abovereconciles net product margin on a combined basis to gross profit, a directlycomparable GAAP financial measure.

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The following tablepresents a reconciliation of net income as adjusted for one-time gains to themost directly comparable GAAP financial measure on a historical basis for eachperiod presented:
| ** **                                                                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                      | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Reconciliation of net income to  net income as adjusted for one-time gains:** |       |                                             |       |   |   |
| Net income                                                                      |       | $                                                | 32,875     |   | $ | 12,688 |   |
| Gain on sale of  investment                                                     |       | (14,118                                          | )          | — |   |
| Net income as adjusted  for one-time gains                                      |       | $                                                | 18,757     |   | $ | 12,688 |   |

 

The following table presents a reconciliation ofadjusted net income per diluted limited partner unit to the most directlycomparable GAAP financial measure on a historical basis for each periodpresented:
| ** **                                                                                                                   | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                   | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Reconciliation of net income  per diluted limited partner unit to adjusted net income per diluted limited  partner unit:** |       |                                             |       |   |   |
| Net income per  diluted limited partner unit under EITF 03-06                                                                |       | $                                                | 1.75       |   | $ | 0.85 |   |
| Dilutive impact  of theoretical distribution of earnings                                                                     |       | 1.10                                             |       | 0.25 |   |
| Adjusted net income per  diluted limited partner unit                                                                        |       | $                                                | 2.85       |   | $ | 1.10 |   |

 

Thefollowing table presents reconciliations of EBITDA and Adjusted EBITDA to themost directly comparable GAAP financial measures on a historical basis for eachperiod presented (in thousands):
| ** **                                                                                       | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                       | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Reconciliation of net income to  EBITDA and Adjusted EBITDA:**                                 |       |                                             |       |   |   |
| Net income                                                                                       |       | $                                                | 32,875     |   | $ | 12,688 |   |
| Depreciation and  amortization                                                                   |       | 1,269                                            |       | 1,072 |   |
| Interest expense                                                                                 |       | 3,316                                            |       | 2,320 |   |
| Income tax  expense                                                                              |       | 525                                              |       | 680 |   |
| EBITDA                                                                                           |       | 37,985                                           |       | 16,760 |   |
| Gain on sale of  investment                                                                      |       | (14,118                                          | )          | — |   |
| Adjusted EBITDA                                                                                  |       | $                                                | 23,867     |   | $ | 16,760 |   |
|                                                                                             |       |                                             |       |   |   |
| **Reconciliation of cash flow  provided by operating activities to EBITDA and Adjusted EBITDA:** |       |                                             |       |   |   |
| Cash flow  provided by operating activities                                                      |       | $                                                | 140,728    |   | $ | 56,589 |   |
| Net changes in  operating assets and liabilities                                                 |       | (106,584                                         | )          | (42,829 | ) |
| Interest expense                                                                                 |       | 3,316                                            |       | 2,320 |   |
| Income tax  expense                                                                              |       | 525                                              |       | 680 |   |
| EBITDA                                                                                           |       | 37,985                                           |       | 16,760 |   |
| Gain on sale of  investment                                                                      |       | (14,118                                          | )          | — |   |
| Adjusted EBITDA                                                                                  |       | $                                                | 23,867     |   | $ | 16,760 |   |

 

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The following tablepresents reconciliations of distributable cash flow to the most directlycomparable GAAP financial measures on a historical basis for each periodpresented (in thousands):
| ** **                                                                                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Reconciliation  of net income to distributable cash flow:**                                 |       |                                             |       |   |   |
| Net income                                                                                    |       | $                                                | 32,875     |   | $ | 12,688 |   |
| Depreciation and amortization                                                                 |       | 1,269                                            |       | 1,072 |   |
| Gain on sale of investment                                                                    |       | (14,118                                          | )          | — |   |
| Maintenance capital expenditures                                                              |       | (767                                             | )          | (104 | ) |
| Distributable cash flow                                                                       |       | $                                                | 19,259     |   | $ | 13,656 |   |
|                                                                                          |       |                                             |       |   |   |
| **Reconciliation  of cash flow provided by operating activities to distributable cash flow:** |       |                                             |       |   |   |
| Cash flow provided by operating activities                                                    |       | $                                                | 140,728    |   | $ | 56,589 |   |
| Net changes in operating assets and liabilities                                               |       | (106,584                                         | )          | (42,829 | ) |
| Gain on sale of investment                                                                    |       | (14,118                                          | )          | — |   |
| Maintenance capital expenditures                                                              |       | (767                                             | )          | (104 | ) |
| Distributable  cash flow                                                                      |       | $                                                | 19,259     |   | $ | 13,656 |   |

 

***Consolidated Results***

Ourtotal sales for the first quarter of 2007 increased by $222.2 million, or 16%,to $1,573.2 million compared to $1,351.0 million for the same period in2006.  The increase was driven primarily by increased heating oil sales due tocolder-than-normal temperatures and higher gasoline and distillate sales.  Our aggregate volume of product soldincreased by approximately 108 million gallons, or 14%, to 906 milliongallons.  The increase in volumeprimarily includes increases of 97 million and 41 million gallons indistillates and gasoline, respectively, as a result of our terminal acquisitionsin Bridgeport, Connecticut and Macungie, Pennsylvania and higher-than-normalheating degree days, offset by a 25 million gallon decrease in residualoil.  The number of actual heating degreedays increased 11% to 2,918 compared to 2,635 for the quarters ended March 31,2007 and 2006, respectively.  Our grossprofit for the first quarter of 2007 was $42.2 million, an increase of $10.0million, or 31%, compared to $32.2 million for the same period in 2006.  The increase was primarily due to higher netproduct margins in our Wholesale segment for distillates and residual oil.

*Wholesale Segment*

Distillates.  Wholesale distillate sales for the threemonths ended March 31, 2007 increased by $188.2 million, or 22%, to $1,048.8million from $860.6 million for three months ended March 31, 2006 primarily dueto increases in volume sold and in distillate prices for the first quarter of2007 compared to the same period in 2006. We attribute the increase involume sold to the terminal acquisitions in Bridgeport, Connecticut andMacungie, Pennsylvania as well as to temperatures that were 2%colder-than-normal for the first quarter of 2007 and 11% colder compared to thefirst quarter of 2006.  Our net productmargin contribution from distillate sales increased by $7.1 million, or 36%, to$26.7 million for the three months ended March 31, 2007 compared to the sameperiod in 2006.  The increase was, inpart, the result of our ability to pass through to customers our increasedcosts related to sales and the introduction of specialty fuels, such as lowersulfur grades of diesel fuel, into our marketplaces.

Gasoline.  Wholesale gasoline sales for the three monthsended March 31, 2007 were $381.3 million compared to 306.6 million for the sameperiod in 2006.  The increase of $74.7 million, or 24%, for thefirst quarter of 2007 compared to the first quarter of 2006 was due toan increase of 22% in gasoline volumesold and higher gasolineprices.  Our net product marginfrom gasoline sales decreased by$1.6 million, or 50%, to $1.6 million for the three months ended March 31, 2007compared to the same period in 2006, primarily due to the return of margins tomore historical norms as the industry adjusts to the introduction ofethanol-based gasoline and other transportation fuels.

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ResidualOil.  Wholesale residual oilsales for the three months ended March 31, 2007 were $10.6 million compared to$29.8 million for the three months ended March 31, 2006.  The decrease of $19.2 million, or 64%, forthe first three months of 2007 compared to 2006 was the result of a 60% decline in residual oil volume sold anda decrease in residual oil prices.  Weattribute the decrease in volume sold to competitive pricing and alternativeproducts.  Our product margincontribution from residual oil sales increased by $5.2 million, or 112%, to$9.9 million for the first quarter of 2007 compared to 2006, primarily due toan increase in net product margin and favorable market conditions.

*Commercial Segment*

Inour Commercial segment, residual oil accounted for approximately 80% and 84% oftotal commercial volume sold for the three months ended March 31, 2007 and2006, respectively.  Distillates,gasoline and natural gas accounted for the remainder of the total commercialvolume sold.

Commercialresidual oil sales for the quarter ended March 31, 2007 decreased 17% comparedto the same period in 2006 due to a 16% decrease in volume sold.  We attribute the decrease in volume sold tocompetitive pricing and alternative products.

*Selling,General and Administrative Expenses*

SG&Aexpenses increased by $2.5 million, or 23%, to $13.4 million for the threemonths ended March** **31, 2007compared to $10.9 million for the same period in 2006.  During the first quarter of 2007, we hadincreases of approximately $1.2 million in salaries and bonuses, $0.7 millionin professional and consulting fees, $0.2 million in information technologyexpenses, $0.2 million related to employee vacation benefits and $0.2 millionin other SG&A expenses.

*Operating Expenses*

Operatingexpenses increased by $0.3 million, or 5%, to $5.9 million for the three monthsended March 31, 2007 compared to $5.6 million for the same period in 2006.  The increase was primarily due to$0.4 million in costs associated with operating our Bridgeport, Connecticutand Macungie, Pennsylvania facilities, $0.1 million in increased rent foradditional tankage at the Capital Terminal in East Providence, Rhode Island and$0.1 million in other operating expenses, offset by $0.3 million inpipeline repair expenses we incurred during the first quarter of 2006.

***Interest Expense***

***Interest expense for the three monthsended March 31, 2007 increased $1.0 million, or 43%, to $3.3*** million compared to $2.3 million for the same periodin 2006, primarily due to higher average balances on our revolving line ofcredit and higher average interest rates during the three months ended March31, 2007.

***Other Income***

***Other income for the three months endedMarch 31, 2006 represented dividend income from our ownership interest in ourNYMEX seats and related holdings.  InMarch 2007, we sold our investment in NYMEX Holdings, Inc. along with our NYMEXseats and, as a result, other income was not recognized for the three monthsended March*** 31, 2007.  See Note12 of Notes to Financial Statements.

***Gain on Sale of Investment***

***The $14.1 million gain on sale ofinvestment represents the amount we realized on the March 2007 sale of ourNYMEX seats and holdings.  See Note 12 ofNotes to Financial Statements.***

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*** ***

**Liquidity and CapitalResources**

***Liquidity***

Our primaryliquidity needs are to fund our capital expenditures and our working capitalrequirements.  Cash generated fromoperations and our working capital revolving credit facility provides ourprimary sources of liquidity.  Workingcapital was $146.4 million at March 31, 2007 compared to $148.3 million atDecember 31, 2006.

On February 8, 2007,we and certain of our subsidiaries filed a universal shelf registrationstatement on Form S-3 with the SEC to register the issuance andsale, from time to time and in such amounts as is determined by marketconditions and our needs, of up to $400.0 million of our common units anddebt securities of both us and certain of our subsidiaries.  We will use the net proceeds from the sale ofthe securities covered by the shelf registration for general partnership purposes,which may include debt repayment, future acquisitions, capital expenditures andadditions to working capital.  OnApril 3, 2007, we filed an amendment to the registration statement onForm S-3 /A, and on April 9, 2007, the registrationstatement on Form S-3 became effective by the SEC.

On February 14, 2007, we paid a cash distribution of $5.2million for the fourth quarter of 2006 to our common and subordinatedunitholders of record as of the close of business on February 5, 2007.

On April24, 2007, the General Partner’s board of directors declared a quarterly cashdistribution of $0.4650 per unit for the first quarter of 2007 to our commonand subordinated unitholders of record as of the close of business on May 4,2007.  This distribution resulted in ourreaching the second target distribution with respect to the incentivedistribution rights held by the General Partner for the quarter ended March 31,2007.  We expect to pay the cashdistribution of approximately $5.4 million on May 15, 2007.

On April24, 2007, we amended our Credit Agreement to, among other things, increase theamount available to us for acquisitions from $35.0 million to $85.0 million andextend the term of the Credit Agreement through April 2011.  See “*Credit Agreement*”below for further details.

On May 9,2007, we issued 1,785,715 unregistered Class B units in a privateplacement.  We received proceeds of $50.0million.  The Class B units areconvertible into common units on a one-for-one basis upon the approval of amajority of the votes cast by common unitholders, provided that the totalnumber of votes cast is at least a majority of common units eligible to vote(excluding common units held by our general partner and its affiliates).  In addition, the Class B units are convertibleinto common units on a one-for-one basis if the New York Stock Exchange amendsits requirements to eliminate the common unitholder approval requirement.  In connection with the issuance of the ClassB units, we agreed to a discount in the purchase price of approximately $0.8million, which is the amount equal to the product of (i) the number of issuedand outstanding Class B units, times (ii) $0.4650, the amount of our firstquarter per unit distribution to be paid to the common and subordinated unitholderson May 15, 2007.  Such discount will be paidby us to the purchasers of the Class B units substantially contemporaneouslywith the payment of our first quarter distribution.

On May 9,2007, we completed our previously announced acquisition of three contiguousrefined petroleum product terminals from ExxonMobil Oil Corporation for cashconsideration of approximately $101.5 million. We financed the acquisition through an expansion of our credit facility,proceeds from the sale of our NYMEX Holdings shares and related NYMEX seats andthe $50.0 million private placement of Class B units discussed above.

***Capital Expenditures***

Our terminallingoperations require investments to expand, upgrade or enhance existingoperations and to meet environmental and operations regulations.  Our capital requirements primarily consist ofmaintenance capital expenditures and capital improvement expenditures.  Maintenance capital expenditures representcapital expenditures to replace partially or fully depreciated assets tomaintain the operating capacity of, or sales generated by, existing assets andextend their useful lives, such as expenditures required to maintain equipmentreliability, tankage and pipeline integrity and safety, and to addressenvironmental regulations.  We hadapproximately $0.8 million and $0.1 million in maintenance capital expendituresfor the three months ended March 31, 2007 and 2006, respectively.  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.

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Capitalimprovement expenditures include expenditures to acquire assets to grow ourbusiness and to expand existing facilities, such as projects that increaseoperating capacity by increasing tankage or adding terminals.  We had approximately $0.1 million and $0.7million in capital improvement expenditures for the three months endedMarch 31, 2007 and 2006, respectively, to increase operating capacity andcapabilities.

We anticipate thatmaintenance capital expenditures will be funded with cash generated byoperations.  We believe that we will havesufficient liquid assets, cash flow from operations, borrowing capacity underour credit agreement and the ability to issue additional common units and/ordebt securities under our shelf registration statement to meet our financialcommitments, debt service obligations, contingencies and anticipated capitalexpenditures.  However, we are subject tobusiness and operational risks that could adversely affect our cash flow.  A material decrease in our cash flows wouldlikely produce a corollary adverse effect on our borrowing capacity.

***Cash Flow***

Thefollowing table summarizes cash flow activity (in thousands):
| ** **                                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
|                                                 |       |                                             |       |   |   |
| Net cash  provided by operating activities           |       | $                                                | 140,728    |   | $ | 56,589 |   |
| Net cash  provided by (used in) investing activities |       | $                                                | 9,715      |   | $ | (829 | ) |
| Net cash used in  financing activities               |       | $                                                | (152,317   | ) | $ | (56,706 | ) |

 

Net cash providedby operating activities increased by $84.1 million for the quarter ended March31, 2007 compared to the same period in 2006 and generally reflects thecontraction of our balance sheet from decreases in the carrying values ofinventories and accounts payable as we exit our peak season, offset by anincrease in the carrying value of accounts receivable due to a prolongedheating season in the first quarter of 2007 compared to the same period in 2006and the increase in our gasoline sales.

The increase incash provided by operating activities also includes net income of $32.9million, the adjustment of $14.1 million for the gain on the sale of our NYMEXHoldings shares and related seats, and a $66.2 million change in fair value ofour forward fixed purchase and sale contracts.

Net cash providedby investing activities was $9.7 million for the three months ended March 31,2007 compared to cash used in the amount of $0.8 million for the same period in2006.  The $10.5 millionincrease was primarily attributable to proceeds of $15.3 million from the sale of our investment inNYMEX Holdings and related seats, offset by $4.7 million used for apre-acquisition deposit and other costs and $0.8 million used for total capital expendituresduring the first quarter of 2007.

Net cash used infinancing activities increased $95.6 million for the three months ended March 31, 2007compared to the same period in 2006. During the first quarter of 2007, we paid $147.0 million on our revolving line of credit and$5.2 million in cash distributions to our common and subordinatedunitholders.  In comparison, for thefirst quarter in 2006, we paid $51.9 millionon our credit facility and $4.7 million in cash distributions.

***Credit Agreement***

In August 2006,we, our general partner, our operating company and our operating subsidiariesamended our four-year senior secured credit agreement to increase the permanentworking capital revolving credit facility commitment by $100.0 million fortotal available commitments of $600.0 million. We repay amounts outstanding and reborrow funds based on our workingcapital requirements and, therefore, classify as a current liability theportion of the revolving line of credit we expect to pay down during the courseof the year.  The long-term portion ofthe revolving line of credit is the amount we expect to be outstanding duringthe entire year.

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At March 31, 2007,there were three facilities under our Credit Agreement that included thefollowing:

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

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

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

At March 31, 2007,borrowings under our working capital revolving credit, acquisition andrevolving credit facilities bore interest at our option at (1) the Eurodollarrate, plus 1%, 13⁄4% and 11⁄2%, respectively, (2) the cost of funds rate, plus 1%,13⁄4% and 11⁄2%, respectively, or (3) the bank’s base rate.  The average interest rate for the threemonths ended March 31, 2007 was 6.3%.  Weincur a letter of credit fee of 1% per annum for each letter of creditissued.  In addition, we incur acommitment fee on the unused portion of the three facilities under the CreditAgreement (including the unused portion of either of the seasonal overlinefacilities exercised by us) at a rate of 25 basis points per annum, a facilityfee of 10 basis points per annum on any unexercised seasonal overline facilityduring the period between September 1st and June 30th and a seasonal overline fee of $30,000 eachtime we elect to exercise either of the seasonal overline facilities.  As of March 31, 2007, we had total borrowingsoutstanding under our working capital revolving credit facility of $123.7million and outstanding letters of credit of $45.2 million, for a totalindebtedness of $168.9 million.

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

As previouslydisclosed in a Form 8-K filed by us on April 26, 2007, the Credit Agreement wasamended to, among other things:

·              increase our $35.0million acquisition facility by $50.0 million to $85.0 million;

·              possibly increase, atour request and provided that no Default or Event of Default (as defined in theCredit Agreement) then exists: (1) the acquisition facility by up toanother $50.0 million, for a total acquisition facility of up to $135.0 million;and (2) the working capital revolving credit facility by up to another $100.0 million, for atotal working capital revolving credit facility of up to $650.0 million.  Any such request for an increase by us mustbe in a minimum amount of $5.0 million, and no more than three such requestsmay be made for each facility;

·              extend the term ofthe Credit Agreement to April 22, 2011;

·              reduce the marginsthat are added to the Eurodollar rate for interest on indebtedness under theCredit Agreement from a range of 1.00% to 1.75% per annum to a range of 1.00%to 1.50% per annum, depending on which facility is being used;

·              reducethe minimum EBITDA (as defined in the Credit Agreement) to interest coverageratio from 2.75:1:00 to 2.50:1.00; and

·              increasethe threshold amount in excess of which we are not permitted to make or tobecome legally obligated to make aggregate permitted capital expenditures inany fiscal year from $4.0** **millionto $10.0 million.

***Off-Balance Sheet Arrangements***

We have nooff-balance sheet arrangements.

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**Critical AccountingPolicies 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 financial statements requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results maydiffer from these estimates under different assumptions or conditions.

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

The significantaccounting policies and estimates that we have adopted and followed in thepreparation of our consolidated financial statements are detailed in Item 7,“Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Critical Accounting Policies and Estimates” and Note 2 of Notes toFinancial Statements, “Summary of Significant Accounting Policies” included inour Annual Report on Form 10-K for the year ended December 31, 2006.  There have been no subsequent changes inthese policies and estimates that had a significant impact on our financialcondition and results of operations for the periods covered in this report.

**RecentAccounting Pronouncements**

A description andrelated impact expected from the adoption of certain new accountingpronouncements is provided in Note 14 of Notes to Financial Statements.

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

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

***Interest Rate Risk***

We utilizevariable rate debt and are exposed to market risk due to the floating interestrates on our current credit facility and term loan.  Therefore, from time to time, we may utilizeinterest rate swaps and collars to hedge interest obligations on specific andanticipated debt issuances.  We had no interest rate hedging instrumentsoutstanding as of March 31, 2007.  Borrowingsunder our working capital revolving credit, acquisition credit and revolvingcredit facilities bore interest at our option at (1) the Eurodollar rate, plus1%, 13⁄4% and 11⁄2 %, respectively, (2) the cost of funds rate, plus 1%, 13⁄4% and 11⁄2%, respectively, or (3) the bank’s base rate (the average rate for the threemonths ended March 31, 2007 was 6.3%). As of March 31, 2007, we had total borrowings outstanding under ourworking capital revolving credit facility of $123.7 million.  The impact of a 1% increase in the interestrate on this amount of debt would have resulted in an increase in interestexpense, and a corresponding decrease in our results of operations, ofapproximately $1.2 million annually, assuming, however, that our indebtednessremained constant throughout the year.

***Commodity Risk***

We hedge ourexposure to price fluctuations with respect to refined petroleum products instorage and expected purchases and sales of these commodities.  The derivative instruments utilized consistprimarily of futures and option contracts traded on the NYMEX andover-the-counter transactions, including swap contracts entered into withestablished financial institutions and other credit-approved 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

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affect the profit wereceive.  While our policies are designedto minimize market risk, some degree of exposure to unforeseen fluctuations inmarket conditions remains.  Except forthe controlled trading program discussed below, we do not acquire and holdfutures contracts or other derivative products for the purpose of speculatingon price changes that might expose us to indeterminable losses.

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

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

At March 31, 2007,the fair value of all of our commodity risk derivative instruments and thechange in fair value that would be expected from a 10% price decrease are shownin the table below (in thousands):

(Loss) gain:
| ** **                     | ** ** | **Fair Value at  March 31, 2007** | ** ** | **Effect of 10%  Price Decrease** | ** ** |
|--------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------|------------|
|                           |       |                                                  |       |                                             |       |
| NYMEX contracts                |       | $                                                     | (1,691     | )                                                | $          | 1,080 |   |
| Swaps, options  and other, net |       | (675                                                  | )          | 13                                               |       |
|                           |       | $                                                     | (2,366     | )                                                | $          | 1,093 |   |

 

The fair values ofthe futures contracts are based on quoted market prices obtained from theNYMEX. The fair value of the swaps and option contracts are estimated based onquoted prices from various sources such as independent reporting services,industry publications and brokers.  Thesequotes are compared to the contract price of the swap, which approximates thegain or loss that would have been realized if the contracts had been closed outat March 31, 2007. For positions where independent quotations are notavailable, an estimate is provided, or the prevailing market price at which thepositions could be liquidated is used. All hedge positions offset physicalexposures to the spot market; none of these offsetting physical exposures areincluded in the above table.  Price-risksensitivities were calculated by assuming an across-the-board 10% decrease inprice regardless of term or historical relationships between the contractualprice of the instruments and the underlying commodity price. In the event of anactual 10% change in prompt month prices, the fair value of our derivativeportfolio would typically change less than that shown in the table due to lowervolatility in out-month prices. We have a daily margin requirement to maintaina cash deposit with our broker based on the prior day’s market results on openfutures contracts. The balance of this deposit will fluctuate based on our openmarket positions and the commodity exchange’s requirements. The requiredbrokerage margin balance was $1.4 million at March 31, 2007.

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

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**Item 4.        Controlsand Procedures**

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

***Disclosure Controls and Procedures***

Ourmanagement, with the participation of our principal executive officer andprincipal financial officer, evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of theSecurities Exchange Act of 1934 (the “Exchange Act”)) as of the fiscal quarterended March 31, 2007.  Based on thisevaluation, our principal executive officer and principal financial officerhave concluded that our disclosure controls and procedures are effective toensure that the information required to be disclosed by us in the reports we fileor submit under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in SEC rules and forms.

***Internal Control overFinancial Reporting***

There has not been any change in our internal controlover financial reporting (as defined in Rule 13a-15(f) of the Exchange Act)that occurred during the fiscal quarter ended March 31, 2007 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

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**PARTII.  OTHER INFORMATION**

**Item 1.        LegalProceedings**

Although we may,from time to time, be involved in litigation and claims arising out of ouroperations in the normal course of business, we do not believe that we are aparty to any litigation that will have a material adverse impact on ourfinancial condition or results of operations. Except as described in our Annual Report on Form 10-K for the year endedDecember 31, 2006, 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 for personal andproperty damage or that these levels of insurance will be available in thefuture at economical prices.

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**Item 1A.     RiskFactors**

There have been nomaterial changes to the Risk Factors disclosed in the Partnership’s AnnualReport on Form 10-K for the year ended December 31, 2006.

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

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

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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: May 10,  2007 | By:                    | /s/ Eric Slifka |
|                 |                   | Eric Slifka |
|                 |                   | President and Chief Executive Officer |
|                 |                   | (Principal Executive Officer) |
|                 |                   |   |
|                 |                   |   |
| Dated: May 10,  2007 | By:                    | /s/ Thomas J. Hollister |
|                 |                   | Thomas J. Hollister |
|                 |                   | Executive Vice President, Chief Operating Officer  and Chief Financial Officer |
|                 |                   | (Principal Financial Officer) |

 

 

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

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

 

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