**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

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**FORM 10-Q/A**

 

**(Amendment No. 1)**

 

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**(Mark One)**

 
| **Q**      | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                  | ** ** |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                    | ** ** |
| ** ** | ** ** | **For the quarterly period ended March 31, 2010**                                                                                                                                                             | ** ** |
| ** ** | ** ** | ** **                                                                                                                                                                                                    | ** ** |
| ** ** | ** ** | **OR**                                                                                                                                                                                                        | ** ** |
| ** ** | ** ** | ** **                                                                                                                                                                                                    | ** ** |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                 | ** ** |
| ** ** | ** ** | ** **                                                                                                                                                                                                    | ** ** |
| ** ** | ** ** | **For the transition period  from              to              ** | ** ** |

 

**Commission file number 001-32593**

 

**GlobalPartners LP**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **74-3140887**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation

or organization) |       | (I.R.S. Employer Identification No.) |

 

**P.O. Box9161**

**800 SouthStreet**

**Waltham,Massachusetts 02454-9161**

(Addressof principal executive offices, including zip code)

 

**(781)894-8800**

(Registrant’stelephone number, including area code)

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.                                                                               Yes QNo o

 

Indicate bycheck mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T duringthe preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files.                                                            Yeso No o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, ora smaller reporting company. See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of theExchange Act.

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

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

 

The issuer had 11,338,139 common units and5,642,424 subordinated units outstanding as of May 3, 2010.

 

 

 

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**TABLE OF CONTENTS**

 
| EXPLANATORY NOTE                                                                                                                            |       |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                  | ** ** |
| **PART I.         FINANCIAL INFORMATION**                                                      | ** ** |
| ** **                                                                                                                                  | ** ** |
| **Item 1.  Financial Statements**                                                                                                           | ** ** |
| ** **                                                                                                                                  | ** ** |
| Consolidated  Balance Sheets as of March 31, 2010 (restated) and December 31,  2009                                               | ** ** |
|                                                                                                                                        |       |
| Consolidated  Statements of Income for the three months ended March 31, 2010  (restated) and 2009                                      |       |
|                                                                                                                                        |       |
| Consolidated  Statements of Cash Flows for the three months ended March 31, 2010  (restated) and 2009                                  |       |
|                                                                                                                                        |       |
| Consolidated  Statements of Partners’ Equity for the three months ended March 31, 2010  (restated)                                |       |
|                                                                                                                                        |       |
| Notes to  Consolidated Financial Statements                                                                                                 |       |
|                                                                                                                                        |       |
| **Item 2.       Management’s Discussion and Analysis of  Financial Condition and Results of Operations** | ** ** |
| ** **                                                                                                                                  | ** ** |
| **Item 3.       Quantitative and Qualitative  Disclosures about Market Risk**                                 | ** ** |
| ** **                                                                                                                                  | ** ** |
| **Item 4.       Controls and Procedures**                                                                     | ** ** |
| ** **                                                                                                                                  | ** ** |
| **PART II.  OTHER INFORMATION**                                                                                                   | ** ** |
| ** **                                                                                                                                  | ** ** |
| **Item 1.       Legal  Proceedings**                                                                          | ** ** |
| ** **                                                                                                                                  | ** ** |
| **Item 1A.    Risk  Factors**                                                                                                | ** ** |
| ** **                                                                                                                                  | ** ** |
| **Item 6.       Exhibits**                                                                                    | ** ** |
| ** **                                                                                                                                  | ** ** |
| **SIGNATURES**                                                                                                                              | ** ** |
| ** **                                                                                                                                  | ** ** |
| **INDEX TO EXHIBITS**                                                                                                                       | ** ** |

** **

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**EXPLANATORYNOTE**

 

This Amendment No. 1 on Form 10-Q/A amends the Quarterly Report onForm 10-Q of Global Partners LP (the “Partnership”) for the fiscal quarterended March 31, 2010, as filed with the Securities and Exchange Commissionon May 7, 2010, and restates its unaudited financial statements as of andfor the three months ended March 31, 2010, the notes thereto and relateddisclosures, to reflect the error described below.  As a result, the unaudited interim financialstatements included in the originally filed Form 10-Q should not be reliedupon.

 

Subsequent to the quarter ended March 31, 2010, following a change inthe billing protocol for a certain type of sales transaction for a specificcustomer, management discovered that fuel tax credits associated with suchsales transactions had not been properly recorded.  This coding error resulted in thePartnership’s sales and net income being understated and accrued tax liabilitybeing overstated for the quarter ended March 31, 2010.

 

The unaudited financial statements and the notes thereto includedherein have been restated to reflect this adjustment, and disclosure of theadjustment has been made to the discussion under “Management’s Discussion andAnalysis of Financial Condition and Results of Operations.”

 

For the convenience of the reader, Amendment No. 1 restates the 10-Q inits entirety.  Except as stated above, noother information has been changed from the originally filedForm 10-Q.  The Partnership hasincluded new certifications of its officers pursuant to Sections 302 and 906 ofthe Sarbanes Oxley Act with this Form 10-Q/A.

 

1

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**Item 1.    FinancialStatements**

 

**GLOBAL PARTNERS LP**

**CONSOLIDATED BALANCE SHEETS**

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

**(Unaudited)**

** **
| ** **                                                                                                                                                                      | ** ** | **March 31,** | ** ** | ** **            | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                      | ** ** | **2010**           | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                                                                      | ** ** | **(Restated)**     | ** ** | **2009**              | ** ** |
| **Assets**                                                                                                                                                                      | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                                                 |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                                                                       |       | $                  | 750        |                  | $          | 662 |   |
| Accounts receivable, net                                                                                                                                                        |       | 268,347            |       | 335,912               |       |
| Accounts receivable—affiliates                                                                                                                                             |       | 4,222              |       | 1,565                 |       |
| Inventories                                                                                                                                                                     |       | 443,259            |       | 465,923               |       |
| Brokerage margin deposits                                                                                                                                                       |       | 10,301             |       | 18,059                |       |
| Fair value of forward fixed price contracts                                                                                                                                     |       | 12,730             |       | 3,089                 |       |
| Prepaid expenses and other current assets                                                                                                                                       |       | 35,193             |       | 37,648                |       |
| Total current assets                                                                                                                                                            |       | 774,802            |       | 862,858               |       |
|                                                                                                                                                                            |       |               |       |                  |       |
| Property and equipment, net                                                                                                                                                     |       | 158,236            |       | 159,292               |       |
| Intangible assets, net                                                                                                                                                          |       | 27,866             |       | 28,557                |       |
| Other assets                                                                                                                                                                    |       | 1,431              |       | 1,996                 |       |
| Total assets                                                                                                                                                                    |       | $                  | 962,335    |                  | $          | 1,052,703 |   |
| ** **                                                                                                                                                                      | ** ** | ** **         | ** ** | ** **            | ** ** |
| **Liabilities and partners’  equity**                                                                                                                                      | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current liabilities:                                                                                                                                                            |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                |       | $                  | 187,648    |                  | $          | 243,449 |   |
| Working capital revolving credit facility—current  portion                                                                                                                 |       | 109,788            |       | 221,711               |       |
| Environmental liabilities—current portion                                                                                                                                  |       | 3,296              |       | 3,296                 |       |
| Accrued expenses and other current liabilities                                                                                                                                  |       | 71,441             |       | 77,604                |       |
| Income taxes payable                                                                                                                                                            |       | 128                |       | 461                   |       |
| Obligations on forward fixed price contracts and  other derivatives                                                                                                             |       | 19,380             |       | 21,114                |       |
| Total current liabilities                                                                                                                                                       |       | 391,681            |       | 567,635               |       |
|                                                                                                                                                                            |       |               |       |                  |       |
| Working capital revolving credit facility—less  current portion                                                                                                            |       | 231,412            |       | 240,889               |       |
| Acquisition facility                                                                                                                                                            |       | 71,200             |       | 71,200                |       |
| Environmental liabilities—less current portion                                                                                                                             |       | 2,200              |       | 2,254                 |       |
| Accrued pension benefit cost                                                                                                                                                    |       | 2,395              |       | 2,751                 |       |
| Deferred compensation                                                                                                                                                           |       | 1,946              |       | 1,840                 |       |
| Other long-term liabilities                                                                                                                                                     |       | 10,767             |       | 8,714                 |       |
| Total liabilities                                                                                                                                                               |       | 711,601            |       | 895,283               |       |
| ** **                                                                                                                                                                      | ** ** | ** **         | ** ** | ** **            | ** ** |
| **Partners’ equity**                                                                                                                                                       | ** ** | ** **         | ** ** | ** **            | ** ** |
| Common unitholders (11,338,139 units issued and  11,274,695 outstanding at March 31, 2010 and 7,428,139 units issued and  7,380,996 outstanding at December 31, 2009) |       | 256,053            |       | 165,129               |       |
| Subordinated unitholders (5,642,424 units issued  and outstanding at March 31, 2010 and December 31, 2009)                                                            |       | 3,611              |       | (713                  | )          |
| General partner interest (230,303 equivalent units  outstanding at March 31, 2010 and December 31, 2009)                                                              |       | 148                |       | (29                   | )          |
| Accumulated other comprehensive loss                                                                                                                                            |       | (9,078             | )          | (6,967                | )          |
| Total partners’ equity                                                                                                                                                     |       | 250,734            |       | 157,420               |       |
| Total liabilities and partners’ equity                                                                                                                                     |       | $                  | 962,335    |                  | $          | 1,052,703 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

2

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**GLOBAL PARTNERS LP**

**CONSOLIDATED STATEMENTS OF INCOME**

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

**(Unaudited)**

 
| ** **                                                                                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2010**                                         | ** ** | ** ** | ** ** |
| ** **                                                                                    | ** ** | **(Restated)**                                   | ** ** | **2009** | ** ** |
|                                                                                          |       |                                             |       |   |   |
| Sales                                                                                         |       | $                                                | 1,964,745  |   | $ | 1,632,955 |   |
| Cost of sales                                                                                 |       | 1,916,977                                        |       | 1,582,241 |   |
| Gross profit                                                                                  |       | 47,768                                           |       | 50,714 |   |
|                                                                                          |       |                                             |       |   |   |
| Costs and operating expenses:                                                                 |       |                                             |       |   |   |
| Selling, general and administrative  expenses                                                 |       | 16,578                                           |       | 18,075 |   |
| Operating expenses                                                                            |       | 8,659                                            |       | 8,475 |   |
| Amortization expenses                                                                         |       | 691                                              |       | 800 |   |
| Total costs and operating expenses                                                            |       | 25,928                                           |       | 27,350 |   |
|                                                                                          |       |                                             |       |   |   |
| Operating income                                                                              |       | 21,840                                           |       | 23,364 |   |
|                                                                                          |       |                                             |       |   |   |
| Interest expense                                                                              |       | (4,064                                           | )          | (3,776 | ) |
|                                                                                          |       |                                             |       |   |   |
| Income before income tax expense                                                              |       | 17,776                                           |       | 19,588 |   |
|                                                                                          |       |                                             |       |   |   |
| Income tax expense                                                                            |       | (387                                             | )          | (725 | ) |
|                                                                                          |       |                                             |       |   |   |
| Net income                                                                                    |       | 17,389                                           |       | 18,863 |   |
|                                                                                          |       |                                             |       |   |   |
| Less: General partner’s interest in net  income, including incentive distribution rights |       | (339                                             | )          | (376 | ) |
|                                                                                          |       |                                             |       |   |   |
| Limited partners’ interest in net income                                                 |       | $                                                | 17,050     |   | $ | 18,487 |   |
|                                                                                          |       |                                             |       |   |   |
| Basic net income per limited partner unit                                                     |       | $                                                | 1.26       |   | $ | 1.41 |   |
|                                                                                          |       |                                             |       |   |   |
| Diluted net income per limited partner unit                                                   |       | $                                                | 1.23       |   | $ | 1.40 |   |
|                                                                                          |       |                                             |       |   |   |
| Basic weighted average limited partner  units outstanding                                     |       | 13,585                                           |       | 13,071 |   |
|                                                                                          |       |                                             |       |   |   |
| Diluted weighted average limited partner  units outstanding                                   |       | 13,838                                           |       | 13,203 |   |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

3

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**GLOBAL PARTNERS LP**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Inthousands)**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2010  (Restated)**                             | ** ** | **2009** | ** ** |
| **Cash  flows from operating activities**                                          |       |                                             |       |   |   |
| Net income                                                                         |       | $                                                | 17,389     |   | $ | 18,863 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                             |       |   |   |
| Depreciation and amortization                                                      |       | 3,662                                            |       | 3,713 |   |
| Amortization of deferred financing fees                                            |       | 387                                              |       | 289 |   |
| Gain on disposition of property and  equipment and other                           |       | (1                                               | )          | — |   |
| Bad debt expense                                                                   |       | 190                                              |       | 640 |   |
| Stock-based compensation expense                                                   |       | 128                                              |       | 530 |   |
| Changes in operating assets and  liabilities:                                      |       |                                             |       |   |   |
| Accounts receivable                                                                |       | 67,375                                           |       | 20,445 |   |
| Accounts receivable — affiliate                                               |       | (2,657                                           | )          | 1,422 |   |
| Inventories                                                                        |       | 22,664                                           |       | 12,494 |   |
| Broker margin deposits                                                             |       | 7,758                                            |       | (4,187 | ) |
| Prepaid expenses, all other current assets  and other assets                       |       | 2,554                                            |       | (1,966 | ) |
| Accounts payable                                                                   |       | (55,801                                          | )          | (60,179 | ) |
| Income taxes payable                                                               |       | (334                                             | )          | 71 |   |
| Change in fair value of forward fixed price  contracts                             |       | (11,375                                          | )          | 108,719 |   |
| Accrued expenses, all other current  liabilities and other long-term liabilities   |       | (6,445                                           | )          | 10,376 |   |
| Net cash provided by operating activities                                          |       | 45,494                                           |       | 111,230 |   |
|                                                                               |       |                                             |       |   |   |
| **Cash  flows from investing activities**                                          |       |                                             |       |   |   |
| Capital expenditures                                                               |       | (1,930                                           | )          | (2,452 | ) |
| Proceeds from sale of property and  equipment                                      |       | 16                                               |       | — |   |
| Net cash used in investing activities                                              |       | (1,914                                           | )          | (2,452 | ) |
|                                                                               |       |                                             |       |   |   |
| **Cash  flows from financing activities**                                          |       |                                             |       |   |   |
| Proceeds from public offering, net                                                 |       | 84,792                                           |       | — |   |
| Payments on credit facilities, net                                                 |       | (121,400                                         | )          | (100,200 | ) |
| Repurchased units withheld for tax  obligations                                    |       | (404                                             | )          | — |   |
| Distributions to partners                                                          |       | (6,480                                           | )          | (6,534 | ) |
| Net cash used in financing activities                                              |       | (43,492                                          | )          | (106,734 | ) |
|                                                                               |       |                                             |       |   |   |
| Increase in cash and cash equivalents                                              |       | 88                                               |       | 2,044 |   |
| Cash and cash equivalents at beginning of  period                                  |       | 662                                              |       | 945 |   |
| Cash and cash equivalents at end of period                                         |       | $                                                | 750        |   | $ | 2,989 |   |
|                                                                               |       |                                             |       |   |   |
| **Supplemental  information**                                                      |       |                                             |       |   |   |
| Cash paid during the period for interest                                           |       | $                                                | 4,071      |   | $ | 3,903 |   |

 

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

 

4

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**GLOBALPARTNERS LP**

**CONSOLIDATEDSTATEMENTS OF PARTNERS’ EQUITY**

**(Inthousands)**

**(Restated) (Unaudited)**

 
| ** **                                                               | ** ** | ** **      | ** ** | ** **       | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** **         | ** ** |
|--------------------------------------------------------------------------|------------|-----------------|------------|------------------|------------|--------------|------------|-------------------|------------|--------------------|------------|
| ** **                                                               | ** ** | ** **      | ** ** | ** **       | ** ** | **General**  | ** ** | **Other**         | ** ** | **Total**          | ** ** |
| ** **                                                               | ** ** | **Common**      | ** ** | **Subordinated** | ** ** | **Partner**  | ** ** | **Comprehensive** | ** ** | **Partners’** | ** ** |
| ** **                                                               | ** ** | **Unitholders** | ** ** | **Unitholders**  | ** ** | **Interest** | ** ** | **Loss**          | ** ** | **Equity**         | ** ** |
|                                                                     |       |            |       |             |       |         |       |              |       |               |       |
| **Balance  at December 31, 2009**                                   |       | $               | 165,129    |             | $          | (713         | )          | $                 | (29        | )                  | $          | (6,967 | ) | $ | 157,420 |   |
| Proceeds from public offering, net                                       |       | 84,792          |       | —           |       | —       |       | —            |       | 84,792             |       |
| Stock-based compensation                                                 |       | 128             |       | —           |       | —       |       | —            |       | 128                |       |
| Distributions to partners                                                |       | (3,621          | )          | (2,751           | )          | (162         | )          | —            |       | (6,534             | )          |
| Phantom unit dividends                                                   |       | 54              |       | —           |       | —       |       | —            |       | 54                 |       |
| Repurchased units withheld for tax  obligations                          |       | (404            | )          | —           |       | —       |       | —            |       | (404               | )          |
| Comprehensive income:                                                    |       |            |       |             |       |         |       |              |       |               |       |
| Net income                                                               |       | 9,975           |       | 7,075            |       | 339          |       | —            |       | 17,389             |       |
| Other comprehensive income:                                              |       |            |       |             |       |         |       |              |       |               |       |
| Change in fair value of interest rate  collars and forward starting swap |       | —          |       | —           |       | —       |       | (2,232            | )          | (2,232             | )          |
| Change in pension liability                                              |       | —          |       | —           |       | —       |       | 121               |       | 121                |       |
| Total comprehensive income                                               |       | —          |       | —           |       | —       |       | —            |       | 15,278             |       |
| **Balance  at March 31, 2010**                                      |       | $               | 256,053    |             | $          | 3,611        |       | $                 | 148        |               | $          | (9,078 | ) | $ | 250,734 |   |

 

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

 

5

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**GLOBALPARTNERS LP**

**NOTES TO****CONSOLIDATED****FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

**Organization**

 

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

 

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

 

OnMarch 19, 2010, the Partnership completed a public offering of 3,910,000common units at a price of $22.75 per common unit, which included a 510,000common unit purchase option exercised by the underwriters.  Net proceeds were approximately $84.8 million, after deducting approximately $4.2 million in underwriting fees and offering expenses.  The Partnership used the net proceeds toreduce indebtedness under its senior secured credit agreement.  See Note 15 for additional information related to the publicoffering.

 

ThePartnership’s 1.34% general partner interest (reduced from 1.73% following thePartnership’s public offering discussed above and in Note 15) is held byGlobal** **GP** **LLC,the Partnership’s general partner (the “General Partner”).  The General Partner, which is owned byaffiliates of the Slifka family, manages the Partnership’s operations andactivities and employs its officers and substantially all of itspersonnel.  Affiliates of the GeneralPartner, including its directors and executive officers, own 241,141 commonunits and 5,642,424 subordinated units, representing a combined 34.2% limitedpartner interest.

 

**Basis of Presentation**

 

*Interim Financial Statements*

 

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

 

Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United States (“GAAP”)and reflect all adjustments (consisting of normal recurring adjustments) whichare, in the opinion of management, necessary for a fair presentation of thefinancial condition and operating results for the interim periods.  The interim financial information, which hasbeen prepared pursuant to the rules and regulations of the Securities andExchange Commission (“SEC”), should be read in conjunction with theconsolidated financial statements for the year ended December** **31, 2009 andnotes thereto contained in the Partnership’s Annual Report on Form** **10-K.  The significant accounting policies describedin Note 2 “Summary of Significant Accounting Policies” of such AnnualReport on Form 10-K are the same used in the preparing the accompanyingconsolidated financial statements.

 

The results of operations for the three monthsended March** **31, 2010are not necessarily indicative of the results of operations that will berealized for the entire year ending December** **31, 2010.

 

6

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

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

 

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

 
| ** **                                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                               | ** ** | **2010**                                         | ** ** | **2009** | ** ** |
| Distillate sales: home heating oil, diesel and  kerosene |       | 50%                                              |       |   | 63% |   |   |
| Gasoline sales                                           |       | 45%                                              |       |   | 31% |   |   |
| Residual oil sales                                       |       | 5%                                               |       |   | 6% |   |   |
|                                                     |       | 100%                                             |       |   | 100% |   |   |

 

ThePartnership had one customer, ExxonMobil Oil Corporation (“ExxonMobil”), whoaccounted for approximately 17% and 15% of total sales for the three monthsended March** **31, 2010and 2009, respectively.

 

The consolidated balance sheet at December** **31, 2009 hasbeen derived from the audited consolidated financial statements and footnotesthereto included in the Partnership’s Annual Report on Form** **10-K for the year ended December 31, 2009.

 

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

 

Subsequent to the quarterended March 31, 2010, following a change in the billing protocol for a certaintype of sales transaction for a specific customer, management discovered thatfuel tax credits associated with such sales transactions had not been properlyrecorded.  This coding error resulted inthe Partnership’s sales and net income being understated and accrued taxliability being overstated for the quarter ended March 31, 2010.  As a result, the Partnership has restated itsunaudited financial statements for the correction of an error as of and for thethree months ended March 31, 2010. The error had no impact on the Partnership’s previously reported netcash provided by operating activities.

 

Thefollowing is a summary of the adjustments to the Partnership’s previouslyissued unaudited consolidated balance sheet as of March 31, 2010 (in thousands):

 
| ** **                                     | ** ** | **Previously  Reported** | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|-----------------|------------|--------------|------------|
| **Liabilities and partners’  equity**     |       |                     |       |            |       |         |       |
| Accrued expenses and other current liabilities |       | $                        | 73,802     |            | $          | (2,361       | )          | $ | 71,441 |   |
| Total current liabilities                      |       | $                        | 394,042    |            | $          | (2,361       | )          | $ | 391,681 |   |
| Total liabilities                              |       | $                        | 713,962    |            | $          | (2,361       | )          | $ | 711,601 |   |
|                                           |       |                     |       |            |       |         |       |
| **Partners’ equity**                      |       |                     |       |            |       |         |       |
| Common unitholders                             |       | $                        | 254,692    |            | $          | 1,361        |       | $ | 256,053 |   |
| Subordinated unitholders                       |       | $                        | 2,651      |            | $          | 960          |       | $ | 3,611 |   |
| General partner interest                       |       | $                        | 108        |            | $          | 40           |       | $ | 148 |   |
| Total partners’ equity                    |       | $                        | 248,373    |            | $          | 2,361        |       | $ | 250,734 |   |

 

7

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

Thefollowing is a summary of the adjustments to the Partnership’s previouslyissued unaudited consolidated statement of income for the three months endedMarch 31, 2010 (in thousands, except per unit data):

 
| ** **                                                                              | ** ** | **Previously  Reported** | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------|------------|--------------|------------|
| Sales                                                                                   |       | $                        | 1,962,384  |            | $          | 2,361        |       | $ | 1,964,745 |   |
| Gross profit                                                                            |       | $                        | 45,407     |            | $          | 2,361        |       | $ | 47,768 |   |
| Operating income                                                                        |       | $                        | 19,479     |            | $          | 2,361        |       | $ | 21,840 |   |
| Income before income taxes                                                              |       | $                        | 15,415     |            | $          | 2,361        |       | $ | 17,776 |   |
| Net income                                                                              |       | $                        | 15,028     |            | $          | 2,361        |       | $ | 17,389 |   |
| General partner’s interest in net income,  including incentive distribution rights |       | $                        | (299       | )               | $          | (40          | )          | $ | (339 | ) |
| Limited partners’ interest in net income                                           |       | $                        | 14,729     |            | $          | 2,321        |       | $ | 17,050 |   |
| Basic net income per limited partner unit                                               |       | $                        | 1.08       |            | $          | 0.18         |       | $ | 1.26 |   |
| Diluted net income per limited partner unit                                             |       | $                        | 1.06       |            | $          | 0.17         |       | $ | 1.23 |   |

 

Thefollowing is a summary of the adjustments to the Partnership’s previouslyissued unaudited consolidated statement of cash flows for the three monthsended March 31, 2010 (in thousands).

 
| ** **                                                                       | ** ** | **Previously  Reported** | ** ** | **Adjustments** | ** ** | **Restated** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------|------------|--------------|------------|
| Net income                                                                       |       | $                        | 15,028     |            | $          | 2,361        |       | $ | 17,389 |   |
| Accrued expenses, all other current liabilities  and other long-term liabilities |       | $                        | (4,084     | )               | $          | (2,361       | )          | $ | (6,445 | ) |

 

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

 

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

 

OnJanuary 20, 2010, the board of directors of the General Partner declared aquarterly cash distribution of $0.4875 per unit for the period fromOctober 1, 2009 through December 31, 2009.  This declared cash distribution resulted inan incentive distribution to the General Partner, as the holder of the IDRs andenabled the Partnership to reach its second target distribution with respect tosuch IDRs.  See Note 10, “CashDistributions” for further information.

 

8

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

Thefollowing table provides a reconciliation of net income and the assumedallocation of net income to the limited partners’ interest for purposes ofcomputing net income per limited partner unit for the three months endedMarch 31, 2010 and 2009 (in thousands, except per unit data):

 
| ** **                                                     | ** ** | **Three months ended March 31, 2010** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                     | ** ** | ** **                                                     | ** ** | **Limited** | ** ** | **General** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | ** **                                                     | ** ** | **Partner** | ** ** | **Partner** | ** ** | ** ** | ** ** |
| **Numerator:**                                                 | ** ** | **Total**                                                      | ** ** | **Interest** | ** ** | **Interest** | ** ** | **IDRs** | ** ** |
| Net income(1)                                                  |       | $                                                              | 17,389     |   | $ | 17,050 |   | $ | 339 |   | $ | — |   |
|                                                           |       |                                                           |       |   |   |   |   |   |   |
| Declared distribution                                          |       | $                                                              | 8,455      |   | $ | 8,278 |   | $ | 112 |   | $ | 65 |   |
| Assumed allocation of undistributed net income                 |       | 8,934                                                          |       | 8,772 |   | 162 |   | — |   |
| Assumed allocation of net income                               |       | $                                                              | 17,389     |   | $ | 17,050 |   | $ | 274 |   | $ | 65 |   |
|                                                           |       |                                                           |       |   |   |   |   |   |   |
| **Denominator:**                                               |       |                                                           |       |   |   |   |   |   |   |
| Basic weighted average limited partner units  outstanding(2)   |       |                                                           |       | 13,585 |   |   |   |   |   |
| Dilutive effect of phantom units                               |       |                                                           |       | 253 |   |   |   |   |   |
| Diluted weighted average limited partner units  outstanding(2) |       |                                                           |       | 13,838 |   |   |   |   |   |
|                                                           |       |                                                           |       |   |   |   |   |   |   |
| Basic net income per limited partner unit                      |       |                                                           |       | $ | 1.26 |   |   |   |   |   |
| Diluted net income per limited partner unit                    |       |                                                           |       | $ | 1.23 |   |   |   |   |   |

 
| ** **                                                  | ** ** | **Three months ended March 31, 2009** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                  | ** ** | ** **                                                     | ** ** | **Limited** | ** ** | **General** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | ** **                                                     | ** ** | **Partner** | ** ** | **Partner** | ** ** | ** ** | ** ** |
| **Numerator:**                                              | ** ** | **Total**                                                      | ** ** | **Interest** | ** ** | **Interest** | ** ** | **IDRs** | ** ** |
| Net income(1)                                               |       | $                                                              | 18,863     |   | $ | 18,487 |   | $ | 376 |   | $ | — |   |
|                                                        |       |                                                           |       |   |   |   |   |   |   |
| Declared distribution                                       |       | $                                                              | 6,534      |   | $ | 6,372 |   | $ | 112 |   | $ | 50 |   |
| Assumed allocation of undistributed net income              |       | 12,329                                                         |       | 12,115 |   | 214 |   | — |   |
| Assumed allocation of net income                            |       | $                                                              | 18,863     |   | $ | 18,487 |   | $ | 326 |   | $ | 50 |   |
|                                                        |       |                                                           |       |   |   |   |   |   |   |
| **Denominator:**                                            |       |                                                           |       |   |   |   |   |   |   |
| Basic weighted average limited partner units  outstanding   |       |                                                           |       | 13,071 |   |   |   |   |   |
| Dilutive effect of phantom units                            |       |                                                           |       | 132 |   |   |   |   |   |
| Diluted weighted average limited partner units  outstanding |       |                                                           |       | 13,203 |   |   |   |   |   |
|                                                        |       |                                                           |       |   |   |   |   |   |   |
| Basic net income per limited partner unit                   |       |                                                           |       | $ | 1.41 |   |   |   |   |   |
|                                                        |       |                                                           |       |   |   |   |   |   |   |
| Diluted net income per limited partner unit                 |       |                                                           |       | $ | 1.40 |   |   |   |   |   |

 

----

(1)    OnMarch 19, 2010, the general partner interest was reduced to 1.34% as aresult of the public offering (see Note 15).  This calculation includes the effect of thepublic offering and is based on a weighted average of 1.66% for the threemonths ended March 31, 2010.  Forthe three months ended March 31, 2009, the general partner interest was1.73%.

(2)    At March 31, 2010, limited partner units outstandingexcluded common units held on behalf of the Partnership pursuant to itsRepurchase Program and for future satisfaction of the General Partner’sObligations (as defined in Note 13).  These units are not deemed outstandingfor purposes of calculating net income per limited partner unit (basic anddiluted).

 

9

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 4.****                     ****Comprehensive Income**

 

Thecomponents of comprehensive income consisted of the following (in thousands):

 
| ** **                                                               | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                               | ** ** | **March 31,**               | ** ** |
| ** **                                                               | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| Net income                                                               |       | $                                | 17,389     |   | $ | 18,863 |   |
| Change in fair value of interest rate collars and  forward starting swap |       | (2,232                           | )          | 1,152 |   |
| Change in pension liability                                              |       | 121                              |       | (242 | ) |
| Total comprehensive income                                               |       | $                                | 15,278     |   | $ | 19,773 |   |

 

**Note 5.****                     ****Inventories**

 

ThePartnership hedges substantially all of its inventory purchases through futurescontracts and swap agreements.  Hedgesare executed when inventory is purchased and are identified with that specificinventory.  Changes in the fair value ofthese contracts, as well as the offsetting gain or loss on the hedged inventoryitem, are recognized in earnings as an increase or decrease in cost ofsales.  All hedged inventory is valuedusing the lower of cost, as determined by specific identification, ormarket.  Prior to sale, hedges areremoved from specific barrels of inventory, and the then unhedged inventory issold and accounted for on a first-in, first-out basis.

 

Inventoriesconsisted of the following (in thousands):

 
| ** **                                         | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Distillates: home heating oil, diesel and kerosene |       | $                        | 292,379    |                        | $          | 339,737 |   |
| Residual oil                                       |       | 43,756                   |       | 39,787                      |       |
| Gasoline                                           |       | 65,323                   |       | 64,645                      |       |
| Blend stock                                        |       | 41,801                   |       | 21,754                      |       |
| Total                                              |       | $                        | 443,259    |                        | $          | 465,923 |   |

 

Inaddition to its own inventory, the Partnership has exchange agreements withunrelated third-party suppliers, whereby it may draw inventory from these othersuppliers and suppliers may draw inventory from the Partnership.  Positive exchange balances are accounted foras accounts receivable and amounted to $25.1 million and$22.9 million at March 31, 2010 and December 31, 2009,respectively.  Negative exchange balancesare accounted for as accounts payable and amounted to $20.4 million and$10.2 million at March 31, 2010 and December 31, 2009,respectively.  Exchange transactions arevalued using current quoted market prices.

 

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

 

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

 

10

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

The following table presents the volume of activityrelated to the Partnership’s derivative financial instruments at March** **31, 2010:

 
| ** **            | ** ** | **Units(1)** | ** ** | **Unit of Measure**     | ** **          |
|-----------------------|------------|--------------|------------|-------------------------|---------------------|
| Oil Contracts         |       |         |       |                    |                |
| Long                  |       | 7,495        |       | Thousands of barrels    |                |
| Short                 |       | (11,934      | )          | Thousands of barrels    |                |
|                  |       |         |       |                    |                |
| Natural Gas Contracts |       |         |       |                    |                |
| Long                  |       | 14,585       |       | Thousands of decatherms |                |
| Short                 |       | (14,585      | )          | Thousands of decatherms |                |
|                  |       |         |       |                    |                |
| Interest Rate Collars |       | $            | 200        |                    | Millions of dollars |   |
|                  |       |         |       |                    |                |
| Forward Starting Swap |       | $            | 100        |                    | Millions of dollars |   |

 

(1)            Number of open positions and gross notional amountsdo not quantify risk or represent assets or liabilities of the Partnership, butare used in the calculation of cash settlements under the contracts.

 

***Fair Value Hedges***

 

The fair value of the Partnership’s derivatives isdetermined through the use of independent markets and is based upon theprevailing market prices of such instruments at the date of valuation.  The Partnership enters into futures contractsfor the receipt or delivery of refined petroleum products in futureperiods.  The contracts are entered intoin the normal course of business to reduce risk of loss of inventory on hand,which could result through fluctuations in market prices.  Changes in the fair value of these contracts,as well as the offsetting gain or loss on the hedged inventory item, arerecognized in earnings as an increase or decrease in cost of sales.  Ineffectiveness related to these hedgingactivities was immaterial for the three months ended March** **31, 2010 and 2009.

 

The Partnership also uses futures contracts andswap agreements to hedge exposure under forward purchase and sale commitments.  These agreements are intended to hedge thecost component of virtually all of the Partnership’s forward purchase and salecommitments.  Changes in the fair valueof these contracts, as well as offsetting gains or losses on the forward fixedprice purchase and sale commitments, are recognized in earnings as an increaseor decrease in cost of sales.  Gains andlosses on net product margin from forward fixed price purchase and salecontracts are reflected in earnings as an increase or decrease in cost of salesas these contracts mature. Ineffectiveness related to these hedging activities was immaterial forthe three months ended March 31, 2010 and 2009.

 

11

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

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

 
| ** **                                                             | ** ** | ** **          | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------|------------|---------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                             | ** ** | **Balance  Sheet**  | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| **Asset Derivatives**                                                  | ** ** | **Location  (Net)** | ** ** | **Fair  Value**    | ** ** | **Fair  Value**       | ** ** |
|                                                                   |       |                |       |               |       |                  |       |
| *Derivatives designated as  hedging instruments and  firm commitments* |       |                |       |               |       |                  |       |
| Oil  product contracts(1)                                              |       | (2)                 |       | $                  | 3,360      |                  | $          | 4,085 |   |
|                                                                   |       |                |       |               |       |                  |       |
| *Derivatives not designated as hedging instruments*                    |       |                |       |               |       |                  |       |
| Oil  product and natural gas contracts                                 |       | (2)                 |       | 15,006             |       | 11,067                |       |
|                                                                   |       |                |       |               |       |                  |       |
| Total  asset derivatives                                               |       |                |       | $                  | 18,366     |                  | $          | 15,152 |   |
|                                                                   |       |                |       |               |       |                  |       |
| **Liability Derivatives**                                              | ** ** | ** **          | ** ** | ** **         | ** ** | ** **            | ** ** |
|                                                                   |       |                |       |               |       |                  |       |
| *Derivatives designated as  hedging instruments and  firm commitments* |       |                |       |               |       |                  |       |
| Oil  product contracts(1)                                              |       | (3)                 |       | $                  | 9,959      |                  | $          | 23,030 |   |
|                                                                   |       |                |       |               |       |                  |       |
| *Derivatives not designated as hedging instruments*                    |       |                |       |               |       |                  |       |
| Oil  product and natural gas contracts                                 |       | (4)                 |       | 14,277             |       | 10,805                |       |
|                                                                   |       |                |       |               |       |                  |       |
| Total  liability derivatives                                           |       |                |       | $                  | 24,236     |                  | $          | 33,835 |   |

 

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

(2)      Fair value of forward fixed pricecontracts, prepaid expenses and other current assets and accrued and othercurrent liabilities

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

(4)      Accrued expenses and other currentliabilities

 

12

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

Thefollowing table presents the amount of gains and losses from derivativesinvolved in fair value hedging relationships recognized in the Partnership’sconsolidated statements of income for the three months ended March 31,2010 and 2009 (in thousands):

 
| ** **                                   | ** ** | ** **                                 | ** ** | **Amount of Gain (Loss)**   | ** ** |
|----------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                   | ** ** | ** **                                 | ** ** | **Recognized in Income on** | ** ** |
| ** **                                   | ** ** | ** **                                 | ** ** | **Derivatives**                            | ** ** |
| ** **                                   | ** ** | **Location of Gain (Loss)** | ** ** | **Three Months Ended**           | ** ** |
| **Derivatives in Fair Value** | ** ** | **Recognized in**                     | ** ** | **March 31,**                         | ** ** |
| **Hedging Relationship**                | ** ** | **Income on Derivative**         | ** ** | **2010**                                   | ** ** | **2009** | ** ** |
|                                         |       |                                       |       |                                       |       |   |   |
| Oil  product contracts                       |       | Cost of sales                              |       | $                                          | (27        | ) | $ | (100,224 | ) |
|                                              |            |                                            |            |                                            |            |  |  |  |  |

 
| ** **                     |   | ** **                   |   | **Amount  of Gain (Loss)**   | ** ** |
|--------------------------------|--------|------------------------------|--------|------------------------------|------------|
| ** **                     |   | ** **                   |   | **Recognized  in Income on** | ** ** |
| ** **                     |   | ** **                   |   | **Hedged  Items**            | ** ** |
| ** **                     |   | **Location  of Gain (Loss)** |   | **Three  Months Ended**      | ** ** |
| **Hedged Items in Fair Value** |   | **Recognized  in Income**    |   | **March 31,**           | ** ** |
| **Hedge Relationships**        |   | **on  Related Hedged Item**  |   | **2010**                     | ** ** | **2009** | ** ** |
|                           |   |                         |   |                         |       |   |   |
| Oil  product contracts         |   | Cost of sales                |   | $                            | 27         |   | $ | 100,580 |   |
|                                |        |                              |        |                              |            |  |  |  |  |

 

ThePartnership’s derivative financial instruments do not containcredit-risk-related or other contingent features that could cause acceleratedpayments when these financial instruments are in net liability positions.

 

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

 
| ** **            | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|-----------------------|------------|--------------------------|------------|-----------------------------|------------|
| Futures  contracts    |       | $                        | (5,381     | )                           | $          | (14,605 | ) |
| Swaps  and other, net |       | (1,269                   | )          | (3,420                      | )          |
| Total                 |       | $                        | (6,650     | )                           | $          | (18,025 | ) |

 

The total balances of $(6.6) million and$(18.0) million reflect the fair value of the forward fixed price contractliability net of the corresponding asset on the accompanying consolidated balancesheets at March 31, 2010 and December 31, 2009, respectively.

 

The Partnership also markets and sells naturalgas.  The Partnership generally conductsbusiness by entering into forward purchase commitments for natural gas onlywhen it simultaneously enters into arrangements for the sale of product forphysical delivery to third-party users. The Partnership generally takes delivery under its purchase commitmentsat the same location as it delivers to third-party users.  Through these transactions, which establishan immediate margin, the Partnership seeks to maintain a position that issubstantially balanced between firm forward purchase and salescommitments.  Natural gas is 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 in earnings as an increase or decrease in cost of sales.

 

ThePartnership formally documents all relationships between hedging instrumentsand hedged items after its risk management objectives and strategy forundertaking the hedge are determined. The Partnership calculates hedge effectiveness on a 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.

 

13

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

ThePartnership has a daily margin requirement with its broker based on the priorday’s market results on open futures contracts. The brokerage margin balance was $10.3 million and$18.1 million at March 31, 2010 and December 31, 2009,respectively.

 

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

 

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

 

***Cash Flow Hedges***

 

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

 

The Partnership executed two zeropremium interest rate collars with major financial institutions.  Each collar is designated and accounted foras a cash flow hedge.  The first collar,which became effective on May 14,2007 and expires on May 14,2011, is used to hedge the variability in interest payments due to changes inthe three-month LIBOR rate with respect to $100.0 million of three-month LIBOR-based borrowings.  Under the first collar, the Partnershipcapped its exposure at a maximum three-month LIBOR rate of 5.75% andestablished a minimum floor rate of 3.75%. As of March 31, 2010, thethree-month LIBOR rate of 0.25% was lower than the floor rate.  As a result, in April 2010, thePartnership remitted to the respective financial institution the differencebetween the floor rate and the current rate which amounted to approximately$428,000 and, at March 31, 2010, such amount was recorded in accrued expensesand other current liabilities in the accompanying consolidated balancesheets.  Thefair values of the first collar, excluding accrued interest, were liabilitiesof approximately $3.5 millionand $3.9 millionas of March 31, 2010and December 31,2009, respectively, and were recorded in both other long-term liabilities andaccumulated other comprehensive income. Hedge effectiveness was assessed at inception and is assessed quarterly,prospectively and retrospectively.  The changes in the fair value of the firstcollar are expected to be highly effective in offsetting the changes ininterest rate payments attributable to fluctuations in the three-month LIBORrate above and below the first collar’s strike rates.

 

14

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

On September 29, 2008, the Partnership executed its second zero premiuminterest rate collar.  The second collar,which became effective on October 2, 2008 and expires on October 2, 2013, is used to hedge the variability in cash flows in monthlyinterest payments made on the Partnership’s $100.0 million one-month LIBOR-based borrowings (and subsequentrefinancings thereof) due to changes in the one-month LIBOR rate.  Under the second collar, the Partnershipcapped its exposure at a maximum one-month LIBOR rate of 5.50% and established a minimum floor rate of2.70%.  As of March 31, 2010, the one-month LIBOR rate of 0.23% was lowerthan the floor rate.  As a result, in April 2010,the Partnership remitted to the respective financial institution the differencebetween the floor rate and the current rate which amounted to approximately$206,000 and, at March 31, 2010, such amount was recorded in accruedexpenses and other current liabilities in the accompanying consolidated balancesheet.  Thefair values of the second collar, excluding accrued interest, were liabilitiesof approximately $3.9 millionand $3.2 millionas of March 31, 2010and December 31,2009, respectively, and were recorded in both other long-term liabilities andaccumulated other comprehensive income in the accompanying consolidated balancesheets.  Hedge effectiveness was assessedat inception and is assessed quarterly, prospectively and retrospectively, usingthe regression analysis.  Thechanges in the fair value of the second collar are expected to be highlyeffective in offsetting the changes in interest rate payments attributable tofluctuations in the one-month LIBOR rate above and below the second collar’sstrike rates.

 

In addition, in October 2009,the Partnership executed a forward starting swap with a major financialinstitution.  The swap, which will becomeeffective on May 16,2011 and expire on May 16,2016, will be used to hedge the variability in interest payments due to changesin the one-month LIBOR swap curve with respect to $100.0 million of one-month LIBOR-based borrowings at a fixed rateof 3.93%.  Thefair value of the swap was a liability of approximately $1.8 million as of March 31, 2010 and was recorded in other long-term liabilities inthe accompanying consolidated balance sheets. The fair value of the swap was an asset of approximately $80,000 as ofDecember 31, 2009 and was recorded in other long-term assets in theaccompanying consolidated balance sheets. Hedge effectiveness was assessed at inception and will be assessedquarterly, prospectively and retrospectively, using regression analysis.  The changes in the fairvalue of the swap are expected to be highly effective in offsetting the changesin interest rate payments attributable to fluctuations in the one-month LIBORswap curve.

 

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

 
| ** **                    | ** ** | ** **                   | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|------------------------------|------------|--------------------|------------|-----------------------|------------|
| **Derivatives Designated as** | ** ** | **Balance  Sheet**           | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| **Hedging Instruments**       | ** ** | **Location**                 | ** ** | **Fair  Value**    | ** ** | **Fair  Value**       | ** ** |
|                          |       |                         |       |               |       |                  |       |
| *Asset derivatives*           |       |                         |       |               |       |                  |       |
| Forward starting swap         |       | Other assets                 |       | $                  | —     |                  | $          | 80 |   |
|                          |       |                         |       |               |       |                  |       |
| *Liability derivatives*       |       |                         |       |               |       |                  |       |
| Interest rate collars         |       | Other long-term  liabilities |       | $                  | 7,416      |                  | $          | 7,047 |   |
| Forward starting swap         |       | Other long-term  liabilities |       | 1,783              |       | —                |       |
| Total liability  derivatives  |       |                         |       | $                  | 9,199      |                  | $          | 7,047 |   |

 

15

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

Thefollowing table presents the amount of gains and losses from derivativesinvolved in cash flow hedging relationships recognized in the Partnership’sconsolidated statements of income for the three months ended March 31,2010 and 2009 (in thousands):

 
| ** **                                  | ** ** | ** **                               | ** ** | **Recognized in Income**        | ** ** |
|---------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                  | ** ** | **Amount of Gain (Loss)** | ** ** | **on Derivatives**                   | ** ** |
| ** **                                  | ** ** | **Recognized in Other**        | ** ** | **(Ineffectiveness Portion**         | ** ** |
| ** **                                  | ** ** | **Comprehensive Income**            | ** ** | **and Amount Excluded**         | ** ** |
| ** **                                  | ** ** | **on Derivatives**                  | ** ** | **from Effectiveness Testing)** | ** ** |
| ** **                                  | ** ** | **Three Months Ended**         | ** ** | **Three Months Ended**          | ** ** |
| **Derivatives in Cash Flow** | ** ** | **March 31,**                       | ** ** | **March 31,**                        | ** ** | **March 31,** | ** ** | **March 31,** | ** ** |
| **Hedging Relationship**               | ** ** | **2010**                                 | ** ** | **2009**                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                        |       |                                     |       |                                      |       |   |   |   |   |
| Interest rate collars                       |       | $                                        | (368       | )                                         | $          | 1,152 |   | $ | — |   | $ | — |   |
| Forward starting swap                       |       | (1,864                                   | )          | —                                    |       | — |   | — |   |
| Total                                       |       | $                                        | (2,232     | )                                         | $          | 1,152 |   | $ | — |   | $ | — |   |

 

Ineffectiveness related to the interest ratecollars and forward starting swap is recognized as interest expense and wasimmaterial for the three months ended March 31, 2010 and 2009.  The effective portion related to the interestrate collars that was originally reported in other comprehensive income andreclassified to earnings was $1.5 million and $1.1 million for thethree months ended March 31, 2010 and 2009, respectively.

 

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

 

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

 

Thefollowing table presents the amount of gains and losses from derivatives notinvolved in a hedging relationship recognized in the Partnership’s consolidatedstatements of income for the three months ended March 31, 2010 and 2009(in thousands):

 
| ** **                         |   | ** **                   |   | **Amount  of Gain (Loss)** | ** ** |
|------------------------------------|--------|------------------------------|--------|----------------------------|------------|
| ** **                         |   | ** **                   |   | **Recognized  in Income**  | ** ** |
| ** **                         |   | ** **                   |   | **on  Derivatives**        | ** ** |
| ** **                         |   | **Location  of Gain (Loss)** |   | **Three  Months Ended**    | ** ** |
| **Derivatives  Not Designated as** |   | **Recognized  in**           |   | **March 31,**         | ** ** | **March 31,** | ** ** |
| **Hedging  Instruments**           |   | **Income  on Derivatives**   |   | **2010**                   | ** ** | **2009** | ** ** |
|                               |   |                         |   |                       |       |   |   |
| Oil  product contracts             |   | Cost of sales                |   | $                          | (522       | ) | $ | 3,985 |   |
|                                    |        |                              |        |                            |            |  |  |  |  |

 

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

 

ThePartnership has a senior secured credit agreement (the “Credit Agreement”).  Pursuant to the Credit Agreement, thePartnership exercised its accordion feature (discussed below) and requested anincrease in the Total WC Revolver Commitment (as defined in the CreditAgreement) in an amount equal to $100.0 million.  On December 4, 2009, certain lendersunder the Credit Agreement agreed to fund the $100.0 million increase,bringing the total available commitments under the Credit Agreement from$750.0 million to $850.0 million.

 

16

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 7.       Debt (continued)**

 

Thereare three facilities under the Credit Agreement:

 

·              a working capital revolving credit facility to beused for working capital purposes and letters of credit in the principal amountequal to the lesser of the Partnership’s borrowing base and $750.0 million; the$750.0 million includes two $50.0 million seasonal overlinefacilities that are available each year only during the period betweenSeptember 1 and June 30;

 

·              an $85.0 million acquisition facility to beused for funding acquisitions similar to the Partnership’s business line thathave a purchase price of $25.0 million or less or $35.0 million orless in the aggregate in any 12-month period; and

 

·              a $15.0 million revolving credit facility to beused for general purposes.

 

Inaddition, the Credit Agreement has an accordion feature whereby the Partnershipmay request on the same terms and conditions of its then existing CreditAgreement, provided no Event of Default (as defined in the Credit Agreement) thenexists, an increase to:  (1) theacquisition facility by up to another $50.0 million, for a totalacquisition facility of up to $135.0 million; and (2) the workingcapital revolving credit facility by up to another $100.0 million, for atotal working capital revolving credit facility of up to $850.0 million.  Any such request for an increase by the Partnershipmust be in a minimum amount of $5.0 million, and no more than three suchrequests may be made for each facility. The Partnership, however, cannot provide assurance that its lendinggroup will agree to fund any request by the Partnership for additional amountsin excess of the total available commitments of $850.0** **million.

 

Availabilityunder the Partnership’s working capital revolving credit facility is subject toa borrowing base which is redetermined from time to time and based on specificadvance rates on eligible current assets. Under the Credit Agreement, the Partnership can borrow only up to thelevel of its then current borrowing base. Availability under the Partnership’s borrowing base may be affected byevents beyond the Partnership’s control, such as changes in refined petroleumproduct prices, collection cycles, counterparty performance, advance rates andlimits and general economic conditions. These and other events could require the Partnership to seek waivers oramendments of covenants or alternative sources of financing or to reduceexpenditures.  The Partnership canprovide no assurance that such waivers, amendments or alternative financingcould be obtained or, if obtained, would be on terms acceptable to thePartnership.

 

Borrowingsunder the working capital revolving credit facility bear interest at(1) the Eurodollar rate plus 1.75% to 2.25%, (2) the cost of fundsrate plus 1.75% to 2.25%, or (3) the base rate plus 0.75% to 1.25%, eachdepending on the pricing level provided in the Credit Agreement, as amended,which in turn depends upon the Combined Interest Coverage Ratio (as such termis defined in the Credit Agreement). Borrowings under the acquisition and revolving credit facilities bearinterest at (1) the Eurodollar rate plus 2.25% to 2.75%, (2) the costof funds rate plus 1.75% to 2.25%, or (3) the base rate plus 0.75% to1.25%, each depending on the pricing level provided in the Credit Agreement, asamended, which in turn depends upon the Combined Interest Coverage Ratio.  The average interest rates for the CreditAgreement were 3.3% and 3.9% for the three months ended March 31, 2010 and2009, respectively.

 

In addition, the Partnershipexecuted two zero premium interest rate collars with major financialinstitutions.  The first collar, whichbecame effective on May 14,2007, is used to hedge the variability in interest payments due to changes inthe three-month LIBOR rate with respect to $100.0 million of three-month LIBOR-based borrowings.  The second collar, which became effective onOctober 2, 2008,is used to hedge the variability in cash flows in monthly interest paymentsmade on the Partnership’s $100.0 million one-month LIBOR-based borrowings (and subsequentrefinancings thereof) due to changes in the one-month LIBOR rate.

 

17

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 7.       Debt (continued)**

 

Further, in October 2009, thePartnership executed a forward starting swap with a major financialinstitution.  The swap, which will becomeeffective on May 16,2011 and expire on May 16,2016, will be used to hedge the variability in interest payments due to changesin the one-month LIBOR swap curve with respect to $100.0 million of one-month LIBOR-based borrowings at a fixed rateof 3.93%.  See Note 6 for additional information on the interest rate collarsand the forward starting swap.

 

The Partnership incurs a letterof credit fee of 1.75% 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) equal to 0.3% to 0.375% per annum,depending on the pricing level and the Combined Interest Coverage Ratioprovided in the Credit Agreement.  ThePartnership also incurs a facility fee of 0.1% per annum on any unexercisedseasonal overline facility during the period between September 1 and June 30 and a seasonal overline fee of $30,000 each time thePartnership elects to exercise either of the seasonal overline facilities.

 

The Credit Agreement will matureon April 22,2011.  The Partnership classifies aportion of its working capital revolving credit facility as a long-termliability because the Partnership has a multi-year, long-term commitment fromits bank group.  The long-term portion ofthe working capital revolving credit facility was $231.4 million and $240.9 million at March 31, 2010 and December 31, 2009, respectively, representing the amountsexpected to be outstanding during the year. In addition, the Partnership classifies a portion of its working capitalrevolving credit facility as a current liability because it repays amountsoutstanding and reborrows funds based on its working capital requirements.  The current portion of the working capitalrevolving credit facility was approximately $109.8 million and $221.7 million at March 31, 2010 and December 31, 2009, respectively, representing the amounts thePartnership expects to pay down during the course of the year.

 

Asof March 31, 2010, the Partnership had total borrowings outstanding underthe Credit Agreement of $412.4 million, including $71.2 millionoutstanding on the acquisition facility. In addition, the Partnership had outstanding letters of credit of$32.8 million.  The total remainingavailability for borrowings and letters of credit at March 31, 2010 andDecember 31, 2009 was $404.8 million and $211.2 million,respectively.

 

TheCredit Agreement is secured by substantially all of the assets of thePartnership and each of the Companies and is guaranteed by the GeneralPartner.  The Credit Agreement imposescertain requirements including, for example, a prohibition againstdistributions if any potential default or Event of Default (as defined in theCredit Agreement) would occur, and limitations on the Partnership’s ability togrant liens, make certain loans or investments, incur additional indebtednessor guarantee other indebtedness, make any material change to the nature of thePartnership’s business or undergo a fundamental change, make any materialdispositions, acquire another company, enter into a merger, consolidation, saleleaseback transaction or purchase of assets, or make capital expenditures inexcess of specified levels.

 

TheCredit Agreement imposes financial covenants that require the Partnership tomaintain certain minimum working capital amounts, capital expenditure limits, aminimum EBITDA ratio, a minimum combined interest coverage ratio and a maximumleverage ratio.  On January 26,2010, the lenders under the Credit Agreement consented to increase the Partnership’scapital expenditures limit for the fiscal year ending December 31, 2010from $10.0 million to $20.0 million. The Partnership was in compliance with the foregoing covenants atMarch 31, 2010.  The CreditAgreement also contains a representation whereby there can be no event orcircumstance, either individually or in the aggregate, that has had or couldreasonably be expected to have a Material Adverse Effect (as defined in theCredit Agreement).

 

TheCredit Agreement also requires that in each calendar year, the outstandingamount under the working capital revolving credit facility must be equal to orless than $263.0 million for a period of ten consecutive calendar days.

 

18

----

 

**GLOBALPARTNERS LP**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 7.       Debt (continued)**

 

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

 

Thelending group under the Credit Agreement includes the followinginstitutions:  Bank of America, N.A.;Standard Chartered Bank; JPMorgan Chase Bank, N.A.; Societe Generale; RBSCitizens, National Association; Sovereign Bank; Fortis Capital Corp.; WebsterBank National Association; KeyBank National Association; TD Bank, N.A.(f/k/a TD BankNorth, N.A.); Wells Fargo Bank, N.A.; Wachovia Bank, NationalAssociation; Calyon New York Branch; and The Bank of Tokyo-Mitsubishi UFJ, Ltd.

 

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

 

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

 
| ** **                     | ** ** | **Three Months Ended** | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **March 31,**               | ** ** |
| ** **                     | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| Service cost                   |       | $                                | 53         |   | $ | 325 |   |
| Interest cost                  |       | 163                              |       | 229 |   |
| Expected return on plan assets |       | (169                             | )          | (161 | ) |
| Recognized net actuarial loss  |       | —                           |       | 48 |   |
| Net periodic benefit cost      |       | $                                | 47         |   | $ | 441 |   |

 

EffectiveDecember** **31, 2009, the General Partner’squalified pension plan (the “Plan”) was amended to freeze participation in andbenefit accruals under the Plan. Primarily for this reason, the net periodic benefit cost decreased byapproximately $0.4** **millionfor the three months ended March** **31, 2010compared to the same period in 2009.

 

**Note 9.****                     ****Related Party Transactions**

 

ThePartnership is a party to a Second Amended and Restated Terminal Storage Rentaland Throughput Agreement with Global Petroleum Corp. (“GPC”), an affiliate ofthe Partnership, which extends through December 2013 with annual renewaloptions thereafter.  The agreement isaccounted for as an operating lease.  Theexpenses under this agreement totaled approximately $2.2** **millionand $2.1** **million for the three monthsended March** **31, 2010 and 2009,respectively.

 

Pursuantto an Amended and Restated Services Agreement with GPC, GPC provides certainterminal operating management services to the Partnership and uses certainadministrative, accounting and information processing services of thePartnership.  The expenses from theseservices totaled approximately $21,870 and $21,500 for the three months endedMarch 31, 2010 and 2009, respectively. These charges were recorded in selling, general and administrativeexpenses in the accompanying consolidated statements of income.  The agreement is for an indefinite term, andeither party may terminate its receipt of some or all of the servicesthereunder upon 180 days’ notice at any time after January 1, 2009.  As of March 31, 2010, no such notice oftermination was given by either party.

 

19

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

Pursuantto the Partnership’s Amended and Restated Services Agreement with AllianceEnergy LLC (“Alliance”), the Partnership also provides certainadministrative, accounting and information processing services, and the use ofcertain facilities, to Alliance, an affiliate of the Partnership that is whollyowned by AE Holdings Corp., which is approximately 95% owned by members ofthe Slifka family.  The income from theseservices was approximately $49,000 and $212,000 for the three months endedMarch 31, 2010 and 2009, respectively. These fees were recorded as an offset to selling, general andadministrative expenses in the accompanying consolidated statements of income.  The agreement extends through January 1,2011.

 

ThePartnership sells refined petroleum products to Alliance at prevailing marketprices at the time of delivery.  Sales toAlliance were approximately $7.3 million and $2.7 million for thethree months ended March 31, 2010 and 2009, respectively.

 

TheGeneral Partner employs substantially all of the Partnership’s employees andcharges the Partnership for their services. The expenses for the three months ended March 31, 2010 and 2009,including payroll, payroll taxes and bonus accruals, were $10.4 millionand $12.3 million, respectively. The Partnership also reimburses the General Partner for itscontributions under the General Partner’s 401(k) Savings and ProfitSharing Plan and the General Partner’s qualified and non-qualified pensionplans.

 

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

 
| ** **                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| Receivables from Alliance                |       | $                  | 938        |                  | $          | 838 |   |
| Receivables from GPC                     |       | 246                |       | 251                   |       |
| Receivables from the General Partner (1) |       | 3,038              |       | 476                   |       |
| Total                                    |       | $                  | 4,222      |                  | $          | 1,565 |   |

 

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

 

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

 

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

 

Within45 days after the end of each quarter, the Partnership will distribute all ofits available cash (as defined in its partnership agreement) to unitholders ofrecord on the applicable record date. The amount of available cash is all cash on hand on the date ofdetermination of available cash for the quarter; less the amount of cashreserves established by the General Partner to provide for the proper conductof the Partnership’s business, to comply with applicable law, any of thePartnership’s debt instruments, or other agreements or to provide funds fordistributions to unitholders and to the General Partner for any one or more ofthe next four quarters.

 

ThePartnership will make distributions of available cash from distributable cashflow for any quarter during the subordination period as defined in itspartnership agreement in the following manner: firstly, 98.66% to the commonunitholders, pro rata, and 1.34% to the General Partner, until the Partnershipdistributes for each outstanding common unit an amount equal to the minimumquarterly distribution for that quarter; secondly, 98.66% to the common

 

20

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

unitholders,pro rata, and 1.34% to the General Partner, until the Partnership distributesfor each outstanding common unit an amount equal to any arrearages in paymentof the minimum quarterly distribution on the common units for any priorquarters during the subordination period; thirdly, 98.66% to the subordinatedunitholders, pro rata, and 1.34% to the General Partner, until the Partnershipdistributes for each subordinated unit an amount equal to the minimum quarterlydistribution for that quarter; and thereafter, cash in excess of the minimumquarterly distributions is distributed to the unitholders and the GeneralPartner, as the holder of the IDRs, based on the percentages as provided below.

 

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

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

 

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

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

 

(1)          Thisdistribution of $0.4875 per unit resulted in the Partnership reaching itssecond target distribution for the fourth quarter of 2009.  As a result, the General Partner, as theholder of the IDRs, received this additional incentive distribution.

 

Inaddition, on April 21, 2010, the board of directors of the General Partnerdeclared a quarterly cash distribution of $0.4875 per unit for the period fromJanuary 1, 2010 through March 31, 2010 ($1.95 per unit on anannualized basis).  On May 14, 2010,the Partnership will pay this cash distribution to its common and subordinatedunitholders of record as of the close of business May 5, 2010.  This distribution will result in thePartnership reaching its second target distribution for the quarter endedMarch 31, 2010.

 

**Note 11.****              ****Segment Reporting**

 

ThePartnership is a wholesale and commercial distributor of gasoline, distillatesand residual oil whose business is organized within two operating segments,Wholesale and Commercial, based on the way the chief operating decision maker(CEO) manages the business and on the similarity of customers and expectedlong-term financial performance of each segment.  The accounting policies of the segments arethe same as those described in Note 2, “Summary of Significant AccountingPolicies,” in the Partnership’s Annual Report on Form 10-K for the yearended December 31, 2009.

 

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

 

21

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

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

 

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

 

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

 
| ** **                                  | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **March 31,**               | ** ** |
| ** **                                  | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| **Wholesale Segment:**                      |       |                             |       |   |   |
| Sales                                       |       |                             |       |   |   |
| Distillates                                 |       | $                                | 959,257    |   | $ | 1,006,616 |   |
| Gasoline                                    |       | 874,687                          |       | 501,659 |   |
| Residual oil                                |       | 12,129                           |       | 11,490 |   |
| Total                                       |       | $                                | 1,846,073  |   | $ | 1,519,765 |   |
| Net product margin (1)                      |       |                             |       |   |   |
| Distillates                                 |       | $                                | 34,020     |   | $ | 33,853 |   |
| Gasoline                                    |       | 8,711                            |       | 11,786 |   |
| Residual oil                                |       | 2,856                            |       | 2,820 |   |
| Total                                       |       | $                                | 45,587     |   | $ | 48,459 |   |
| **Commercial Segment:**                     |       |                             |       |   |   |
| Sales                                       |       | $                                | 118,672    |   | $ | 113,190 |   |
| Net product margin (1)                      |       | $                                | 4,918      |   | $ | 4,928 |   |
| **Combined sales and net product  margin:** |       |                             |       |   |   |
| Sales                                       |       | $                                | 1,964,745  |   | $ | 1,632,955 |   |
| Net product margin (1)                      |       | $                                | 50,505     |   | $ | 53,387 |   |
| Depreciation allocated to cost of sales     |       | 2,737                            |       | 2,673 |   |
| **Combined gross profit**                   |       | $                                | 47,768     |   | $ | 50,714 |   |

 

----

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

 

22

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

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

 
| ** **                                                              | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                              | ** ** | **March 31,**               | ** ** |
| ** **                                                              | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| **Combined gross profit**                                               |       | $                                | 47,768     |   | $ | 50,714 |   |
| **Operating costs and expenses  not allocated to reportable segments:** |       |                             |       |   |   |
| Selling, general and administrative expenses                            |       | 16,578                           |       | 18,075 |   |
| Operating expenses                                                      |       | 8,659                            |       | 8,475 |   |
| Amortization expenses                                                   |       | 691                              |       | 800 |   |
| **Total operating costs and  expenses**                                 |       | 25,928                           |       | 27,350 |   |
| Operating income                                                        |       | 21,840                           |       | 23,364 |   |
| Interest expense                                                        |       | (4,064                           | )          | (3,776 | ) |
| Income tax expense                                                      |       | (387                             | )          | (725 | ) |
| **Net income**                                                          |       | $                                | 17,389     |   | $ | 18,863 |   |

 

Therewere no foreign sales for the three months ended March 31, 2010 and2009.  The Partnership has no foreignassets.

 

**Note 12.****              ****Environmental Liabilities**

 

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

 

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

 

In connection with the November 2007 acquisition of ExxonMobil’sGlenwood Landing and Inwood, New York terminals, the Partnership assumedcertain environmental liabilities, including the remediation obligations underremedial action plans submitted by ExxonMobil to and approved by the New YorkDepartment of Environmental Conservation (“NYDEC”) with respect to bothterminals.  As a result, the Partnershiprecorded, on an undiscounted basis, total environmental liabilities ofapproximately $1.2 million, of which approximately $0.7 million waspaid by the Partnership as of March 31, 2010.  The remaining liability of $0.5 millionwas recorded as a current liability of $0.4 million and a long-termliability of $0.1 million in the accompanying consolidated balance sheetat March 31, 2010.  The Partnershiphas implemented the remedial action plans and does not believe that compliancewith the terms thereof will result in material costs in excess of theenvironmental reserve or have a material impact on its operations.

 

23

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 12.****              ****Environmental Liabilities (continued)**

 

Inconnection with the May 2007 acquisition of ExxonMobil’s Albany andNewburgh, New York and Burlington, Vermont terminals, the Partnership assumedcertain environmental liabilities, including the remediation obligations undera proposed remedial action plan submitted by ExxonMobil to NYDEC with respectto the Albany, New York terminal.  As aresult, the Partnership recorded, on an undiscounted basis, total environmentalliabilities of approximately $8.0** **million.  In June 2008, the Partnership submitteda remedial action work plan to NYDEC, implementing NYDEC’s conditional approvalof the remedial action plan submitted by ExxonMobil.  The Partnership responded to NYDEC’s requestsfor additional information and conducted pilot tests for the remediationoutlined in the work plan.  Based on theresults of such pilot tests, the Partnership changed its estimate and reducedthe environmental liability by $2.8** **millionduring the fourth quarter ended December 31, 2008.  At March 31, 2010, this liability had abalance of $5.0 million which was recorded as a current liability of$2.9 million and a long-term liability of $2.1 million in theaccompanying consolidated balance sheet. In July 2009, NYDEC approved the remedial action work plan, and thePartnership signed a Stipulation Agreement with NYDEC to govern implementationof the approved plan.  The Partnershipdoes not believe that compliance with the terms of the approved remedial actionwork plan will result in material costs in excess of the environmental reserveor have a material impact on its operations.

 

Inconnection with the 2006 acquisition of its Macungie, Pennsylvania terminal(the “Global Macungie Terminal”), the Partnership assumed certain existingenvironmental liabilities at the terminal. The Partnership did not accrue for these contingencies as it believesthat the aggregate amount of these liabilities cannot be reasonably estimated atthis time.  The Partnership also executedan Administrative Order on Consent (“AOC”) with the U.S. EnvironmentalProtection Agency, Region III (“EPA, Region III”) requiring certaininvestigatory activities at the Global Macungie Terminal.  The Partnership believes that theinvestigatory activities required by the AOC have been completed, and a finalreport concerning these investigatory activities has been submitted.  In accordance with the AOC, the Partnershipintends to request that EPA, Region III issue a Notice of Completion withrespect to the AOC.  Although thePartnership cannot predict whether EPA, Region III will grant this request,based upon current information, the Partnership does not anticipate that theoutcome will have a material adverse effect on it.  Furthermore, the Partnership does not believethat in the event EPA, Region III requests additional activities before issuinga Notice of Completion, those activities will result in material costs or havea material impact on the Partnership’s operations.

 

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

 

**Note 13.****              ****Long-Term Incentive Plan**

 

InOctober 2005, the General Partner adopted a Long-Term Incentive Plan (“LTIP”)whereby 564,242 common units were authorized for issuance.  Any units delivered pursuant to an awardunder the LTIP may be acquired in the open market or from any affiliate, benewly issued units or any combination of the foregoing.  The LTIP provides for awards to employees,consultants and directors of the General Partner and employees and consultantsof affiliates of the Partnership who perform services for the Partnership.  The LTIP allows for the award of unit options,unit appreciation rights, restricted units, phantom units and distributionequivalent rights (“DERs”).

 

24

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 13.****              ****Long-Term Incentive Plan (continued)**

 

*Long-Term Incentive Plan*

 

OnAugust 14, 2007, the Compensation Committee of the board of directors ofthe General Partner granted awards of phantom units and associated DERs underthe LTIP to certain employees and non-employee directors of the GeneralPartner.  The phantom units grantedvested on December 31, 2009 and became payable on a one-for-one basis incommon units of the Partnership (or cash equivalent) in connection with theachievement of certain performance goals over the vesting period.  The DERs that were granted in tandem with thephantom units vested and became payable in cash simultaneously with the vestingof the phantom units.

 

ThePartnership recorded compensation expense with respect to these awards ofapproximately $0.2 million for the three months ended March 31, 2009which is included in selling, general and administrative expenses in theaccompanying consolidated statements of income. The total compensation cost related to these awards was fully recognizedas of December 31, 2009.  InMarch 2010, the Partnership distributed 62,620 common units in settlementof this award, and in April 2010, the Partnership paid approximately$305,000 in associated DERs.

 

*Three-Year Phantom Units*

 

OnDecember 31, 2008, the Compensation Committee of the board of directors ofthe General Partner granted 99,700 phantom units to a named executiveofficer, including a contingent right to receive an amount in cash equal to thenumber of phantom units multiplied by the cash distribution per common unitmade by the Partnership from time to time during the period the phantom unitsare outstanding.  The phantom units,which are subject to graded vesting, vest in six equal installments onJune 30 and December 31 of each year commencing June 30,2009.  Compensation expense related tothese phantom units is recognized using the accelerated attributionmethod.  The Partnership recordedcompensation expense related to this phantom unit award of approximately$89,000 and $230,000 for the three months ended March 31, 2010 and 2009,respectively, which is included in selling, general and administrative expensesin the accompanying consolidated statements of income.  The total compensation cost related to thenon-vested awards not yet recognized at March 31, 2010 is approximately$0.3 million and is expected to be recognized over the remaining requisiteservice period.  On June 30, 2009,16,617 common units vested under this award and were distributed to the namedexecutive officer, and in July 2009, the Partnership paid a cashdistribution related to these units of approximately $8,000.  On December 31, 2009, 16,617 commonunits vested under this award and were distributed, and in January 2010,the Partnership paid a cash distribution related to these units ofapproximately $32,000.

 

*Five-Year Phantom Units*

 

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

 

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

 

25

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 13.****              ****Long-Term Incentive Plan (continued)**

 

Thefair value of the award at the February 5, 2009 grant date approximatedthe fair value of the Partnership’s common units at that date, reduced by thepresent value of the distributions stream on the equivalent number of commonunits over the derived service period. Compensation cost is recognized ratably over the derived service periodwhich was determined for each tranche using the Monte Carlo simulationmodel.  The derived service period of theaward was assessed using expected volatility which was estimated based onhistorical volatility of the Partnership’s common units.  The Partnership recorded compensation expenserelated to this phantom unit award of approximately $39,000 and $111,000 forthe three months ended March 31, 2010 and 2009, respectively, which isincluded in selling, general and administrative expenses in the accompanyingconsolidated statements of income.  Thetotal compensation cost related to the non-vested awards not yet recognized atMarch 31, 2010 is approximately $0.6 million and is expected to berecognized ratably over the remaining derived service periods.

 

*Repurchase Program*

 

InMay 2009, the board of directors of the General Partner authorized therepurchase of the Partnership’s common units (the “Repurchase Program”) for thepurpose of assisting it in meeting the General Partner’s anticipatedobligations to deliver common units under the LTIP and meeting the GeneralPartner’s obligations under existing employment agreements and other employmentrelated obligations of the General Partner (collectively, the “General Partner’sObligations”).  The Partnership isauthorized to spend up to $6.6 million to acquire up to 445,000 of itscommon units in the aggregate, over an extended period of time, consistent withthe General Partner’s Obligations. Common units of the Partnership may be repurchased from time to time inopen market transactions, including block purchases, or in privately negotiatedtransactions.  Such authorized unitrepurchases may be modified, suspended or terminated at any time, and aresubject to price, economic and market conditions, applicable legal requirementsand available liquidity.  As of March 31,2010, the General Partner repurchased 195,291 common units pursuant to theRepurchase Program for approximately $4.0 million, of which 62,620 phantomunits vested under the *“Long-Term Incentive Plan,”*33,234 phantom units vested under the *“Three-Year Phantom Units”*award and 69,444 phantom units vested under the “*Five-YearPhantom Units”*award.

 

AtMarch 31, 2010 and December 31, 2009, common units outstandingexcluded 63,444 and 47,143 common units, respectively, held on behalf of thePartnership pursuant to its Repurchase Program and for future satisfaction ofthe General Partner’s Obligations.

 

*Status of Non-Vested Units*

 

Thefollowing table presents a summary of the status of the non-vested units as ofMarch 31, 2010:

 
| ** **                                            | ** ** | **Number of   Non-vested   Units** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------|------------|
| Outstanding non-vested units at January 1,  2010 |       | 337,419                                           |       | $                                                       | 6.05       |   |
| Granted                                               |       | —                                            |       | —                                                  |       |
| Vested                                                |       | —                                            |       | —                                                  |       |
| Forfeited                                             |       | —                                            |       | —                                                  |       |
| Outstanding non-vested units at March 31,  2010  |       | 337,419                                           |       | $                                                       | 6.05       |   |

 

26

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 14.****              ****Fair Value Measurements**

 

Certainof the Partnership’s assets and liabilities are measured at fair value.  Fair value is defined as the price that wouldbe received to sell an asset or paid to transfer a liability in the principalor most advantageous market for the asset or liability in an orderlytransaction between market participants at the measurement date.  The Financial Accounting Standards Board (“FASB”)established a fair value hierarchy, which prioritizes the inputs used inmeasuring fair value into the following three levels:

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

 

Thefollowing table presents those financial assets and financial liabilitiesmeasured at fair value on a recurring basis as of March 31, 2010 (inthousands):

 
| ** **                                   | ** ** | **Fair Value** | ** ** | ** **                                       | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------|------------|---------------------|------------|--------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                   | ** ** | **March 31,**  | ** ** | **Fair Value Measurements Using** | ** ** |
| ** **                                   | ** ** | **2010**            | ** ** | **Level 1**                                 | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Assets:**                                  |       |                |       |                                             |       |             |       |             |       |
| Hedged inventories                           |       | $                   | 460,631    |                                             | $          | —           |       | $                | 460,631    |   | $ | — |   |
| Fair value of forward fixed price contracts  |       | 12,730              |       | —                                           |       | 12,730           |       | —           |       |
| Swap agreements and option contracts         |       | 1,382               |       | 858                                              |       | 524              |       | —           |       |
| Total                                        |       | $                   | 474,743    |                                             | $          | 858              |       | $                | 473,885    |   | $ | — |   |
|                                         |       |                |       |                                             |       |             |       |             |       |
| **Liabilities:**                             |       |                |       |                                             |       |             |       |             |       |
| Obligations on forward fixed price contracts |       | $                   | (19,380    | )                                                | $          | —           |       | $                | (19,380    | ) | $ | — |   |
| Swap agreements and option contracts         |       | (599                | )          | (13                                              | )          | (586             | )          | —           |       |
| Interest rate collars                        |       | (7,416              | )          | —                                           |       | (7,416           | )          | —           |       |
| Forward starting swap                        |       | (1,783              | )          | —                                           |       | (1,783           | )          | —           |       |
| Total liabilities                            |       | $                   | (29,178    | )                                                | $          | (13              | )          | $                | (29,165    | ) | $ | — |   |

 

Themajority of the Partnership’s derivatives outstanding are reported at fairvalue based market quotes that are deemed to be observable inputs in an activemarket for similar assets and liabilities and are considered Level 2inputs for purposes of fair value disclosures. Specifically, the fair values of the Partnership’s financial assets andfinancial liabilities provided above were derived from NYMEX and New YorkHarbor quotes for the Partnership’s hedged inventories, forward fixed pricecontracts, swap agreements and option contracts and from the LIBOR rates forthe Partnership’s interest rate collars and forward starting swap.  The Partnership has not changed its valuationtechniques or inputs during the quarter ended March 31, 2010.

 

Forassets and liabilities measured on a non-recurring basis during the period,accounting guidance requires quantitative disclosures about the fair valuemeasurements separately for each major category.  During the quarter ended March 31, 2010,the Partnership did not remeasure assets or liabilities at fair value on a non-recurringbasis.

 

*Financial Instruments*

 

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

 

27

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 15.****              ****Unitholders’ Equity**

 

OnMarch 16, 2010, the Partnership entered into an Underwriting Agreement(the “Underwriting Agreement”) relating to the public offering of 3,400,000common units representing limited partner interests in the Partnership (the “CommonUnits”), at a public offering price of $22.75, less underwriting discounts andcommissions of $1.00 per Common Unit. Pursuant to the Underwriting Agreement, the Partnership also granted theunderwriters an option to purchase an additional 510,000 Common Units from thePartnership at the same price, which option has been exercised.  OnMarch 19, 2010, the Partnership completed the public offering of the3,910,000 Common Units for approximately $89.0 million.  The net proceedsfrom the offering of $84.8 million, after deducting approximately $4.2 million in underwriting fees and offering expenses, wereused to reduce indebtedness under the Partnership’s Credit Agreement.

 

**Note 16.****              ****Income Taxes**

 

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

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **March 31,**               | ** ** |
| ** **                                        | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| Federal statutory income tax rate                 |       | 34.0                             | %          |   | 34.0 | % |   |
| State income tax rate, net of federal tax benefit |       | 6.4                              | %          |   | 6.4 | % |   |
| Partnership income not subject to tax             |       | (38.2                            | )%         |   | (36.7 | )% |   |
| Effective income tax rate                         |       | 2.2                              | %          |   | 3.7 | % |   |

 

**Note 17.****              ****Legal Proceedings**

 

***General***

 

Althoughthe Partnership may, from time to time, be involved in litigation and claimsarising out of its operations in the normal course of business, the Partnershipdoes not believe that it is a party to any litigation that will have a materialadverse impact on its financial condition or results of operations.  Except as described below and in Note 12included herein, the Partnership is not aware of any significant legal orgovernmental proceedings against it, or contemplated to be brought againstit.  The Partnership maintains insurancepolicies with insurers in amounts and with coverage and deductibles as theGeneral Partner believes are reasonable and prudent.  However, the Partnership can provide noassurance that this insurance will be adequate to protect it from all materialexpenses related to potential future claims or that these levels of insurancewill be available in the future at economically acceptable prices.

 

***Other***

 

OnOctober 22, 2009, the Federal Trade Commission (“FTC”) issued a CivilInvestigative Demand and a Subpoena Duces Tecum in connection with the FTC’sregulatory review of the Partnership’s planned acquisition of three refinedpetroleum terminal facilities in Newburgh, New York from Warex TerminalsCorporation.  In April 2010, the FTC closed its regulatory review and determinedthat no further action is warranted by the FTC. The Partnership currently expects to close the transaction by the thirdquarter of 2010.

 

28

----

 

**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 17.****              ****Legal Proceedings (continued)**

 

Certainof the Partnership’s employees at its terminal in Oyster Bay (Commander), NewYork were employed under a collective bargaining agreement that expired in April 2010.  On February 25, 2010, the Partnershipreceived a petition filed with the National Labor Relations Board (“NLRB”) bythe union representing certain employees assigned to Glenwood Landing andInwood, New York (“Local 419”) seeking to replace the incumbent union atthe Partnership’s Oyster Bay, New York terminal (“Local 355”) with respectto certain hourly employees.  OnMarch 1, 2010, Local 355 filed a disclaimer of representation withthe NLRB with respect to the Oyster Bay hourly employees.  A representation election was held in April 2010pursuant to the terms of a Stipulated Election Agreement with Local 419with respect to these employees. Local 419 was elected as the representative of these employees, andthe Partnership will negotiate a new collective bargaining agreement withLocal 419.  The Partnership does notbelieve the results of these negotiations will have a material adverse effecton its operations.

 

**Note 18.****              ****New Accounting Standard**

 

InJanuary 2010, guidance issued by the FASB related to fair valuemeasurements and disclosure was updated to require additional disclosuresrelated to transfers in and out of Level 1 and Level 2 fair valuemeasurements and enhanced detail in the Level 3 reconciliation.  This guidance clarifies the level ofdisaggregation required for assets and liabilities and the disclosures requiredfor inputs and valuation techniques used to measure the fair value of assetsand liabilities that fall in either Level 2 or Level 3.  The updated guidance was effective for thePartnership on January 1, 2010, with the exception of the Level 3disaggregation which is effective for the Partnership on January 1,2011.  The adoption had no impact on thePartnership’s consolidated financial statements.  See Note 14 for details regarding thePartnership’s assets and liabilities measured at fair value.

 

**Note 19.****              ****Subsequent Events**

 

ThePartnership evaluated all events or transactions that occurred through the datethe Partnership issued its financial statements.  Except as described below, no materialsubsequent events have occurred since March 31, 2010 that requiredrecognition or disclosure in the accompanying financial statements.

 

OnApril 20, 2010, the board of directors of the General Partner granted1,200 phantom units under the LTIP to each of the three independentdirectors.  The phantom units vest onDecember 31, 2010.

 

OnApril 21, 2010, the board of directors of the General Partner declared aquarterly cash distribution of $0.4875 per unit ($1.95 per unit on anannualized basis) for the period from January 1, 2010 throughMarch 31, 2010.  On May 14,2010, the Partnership will pay this cash distribution to its common andsubordinated unitholders of record as of the close of business May 5,2010.

 

29

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

 

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

 

**Forward-LookingStatements**

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·              The condition of credit markets may adversely affectour liquidity.

 

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

 

·              We are exposed to performance risk in our supplychain.

 

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

 

30

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

 

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

 

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

 

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

 

**Overview**

 

***General***

 

Weown, control or have access to one of the largest terminal networks of refinedpetroleum products in Massachusetts, Maine, Connecticut, Vermont, NewHampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively,the “Northeast”).  We are one of thelargest wholesale distributors of gasoline, distillates (such as home heatingoil, diesel and kerosene) and residual oil to wholesalers, retailers andcommercial customers in New England and New York.  For the three months ended March 31, 2010,we sold approximately $2.0 billion of refined petroleum products and smallamounts of natural gas.

 

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

 

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

 

***Products and Operational Structure***

 

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

 

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Ourbusiness is divided into two segments:

 

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

 

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

 

Ourbusiness activities are substantially comprised of purchasing, storing,terminalling and selling refined petroleum products.  In a contango market (when product prices forfuture deliveries are higher than for current deliveries), we may use ourstorage capacity to improve our margins by storing products we have purchasedat lower prices in the current market for delivery to customers at higherprices in the future.  In a backwardatedmarket (when product prices for future deliveries are lower than currentdeliveries), we attempt to minimize our inventories to reduce commodity riskand maintain or increase net product margins. See Part I, Item 1A, “Risk Factors,” in our Annual Reporton Form 10-K for the year ended December 31, 2009 for additionalinformation related to commodity risk.

 

***Outlook***

 

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

 

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

 

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

 

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

 

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·              *Warmer weather conditions could adversely affect ourresults of operations and financial condition. *Weather conditions generallyhave an impact on the demand for both home heating oil and residual oil.  Because we supply distributors whosecustomers depend on home heating oil and residual oil for space heatingpurposes during the winter, warmer-than-normal temperatures during the firstand fourth calendar quarters in the Northeast can decrease the total volume wesell and the gross profit realized on those sales.

 

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

 

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

 

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

 

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**Results ofOperations**

 

***Evaluating Our Results of Operations***

 

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

 

*NetProduct Margin*

 

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

 

*Gross Profit*

 

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

 

*Selling,General and Administrative Expenses*

 

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

 

*OperatingExpenses*

 

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

 

*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 than usual.  Degree days are officially observed by theNational Weather Service and officially archived by the National Climatic DataCenter.  For purposes of evaluating ourresults of operations, we use the normal heating degree day amount as reportedby the National Weather Service at its Logan International Airport station inBoston, Massachusetts.

 

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*Net Income Per Diluted Limited Partner Unit*

 

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

 

*EBITDA*

 

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

 

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

 

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

 

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

 

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

 

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

 

EBITDAshould not be considered as an alternative to net income, operating income,cash flow from operating activities or any other measure of financialperformance or liquidity presented in accordance with GAAP.  EBITDA excludes some, but not all, items thataffect net income, and this measure may vary among other companies.  Therefore, EBITDA may not be comparable tosimilarly titled measures of other companies.

 

*DistributableCash Flow*

 

Distributablecash flow is an important non-GAAP financial measure for our limited partnerssince it serves as an indicator of our success in providing a cash return ontheir investment.  In December 2009,we amended our partnership agreement to restate the provisions governingconversion of the subordinated units to use distributable cash flow to testwhether we have “earned” the minimum quarterly distribution.  Distributable cash flow means our net incomeplus depreciation and amortization minus maintenance capital expenditures, aswell as adjustments to eliminate items approved by the audit committee of theboard of directors of our general partner that are extraordinary ornon-recurring in nature and that would otherwise increase distributable cashflow.  Specifically, this financialmeasure indicates to investors whether or not we have generated sufficientearnings on a current or historic level that can sustain or support an increasein our quarterly cash distribution. Distributable cash flow is a quantitative standard used by theinvestment community with respect to publicly traded partnerships.  Distributable cash flow should not beconsidered as an alternative to net income, cash flow from operations, or anyother measure of financial performance presented in accordance with GAAP.  In addition, our distributable cash flow maynot be comparable to distributable cash flow or similarly titled measures ofother companies.

 

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***Three months ended March 31, 2010 and 2009***

 

Duringthe three months ended March 31, 2010, we experienced the followingevents:

 

·                     Refined petroleum productprices dramatically increased during the first quarter of 2010 compared to thesame period in 2009.

 

·                     The first quarter of 2010was marked by margin pressure in the gasoline market compared to the firstquarter of 2009.

 

·                     Temperatures for the threemonths ended March 31, 2010 were 9% warmer than normal and 12% warmer thanthe first quarter of 2009.

 

·                     We decreased our reserve forcredit losses by $450,000 for the three months ended March 31, 2010compared to the same period in 2009.

 

·                     We believe heating oilconservation continued during the three months ended March 31, 2010.

 

Thefollowing table provides the prices of and percentage increases in refinedpetroleum product and natural gas prices at March 31, 2010 as compared toMarch 31, 2009:

 
| ** **         | ** ** | **Heating** | ** ** | ** **   | ** ** | **Residual** | ** ** | **Natural**            | ** ** |
|--------------------|------------|-------------|------------|--------------|------------|--------------|------------|------------------------|------------|
| ** **         | ** ** | **Oil**     | ** ** | **Gasoline** | ** ** | **Oil**      | ** ** | **Gas**                | ** ** |
| ** **         | ** ** | $ per  |       | $ per   |       | $ per   |       | $ per gallon |       |
| **Period:**        | ** ** | gallon(1)   |       | gallon(1)    |       | gallon(2)    |       | equivalent(3)          |       |
| ** **         | ** ** |        |       |         |       |         |       |                   |       |
| At  March 31, 2009 |       | $1.34       |       | $1.40        |       | $0.95        |       | $0.62                  |       |
| At  March 31, 2010 |       | $2.16       |       | $2.31        |       | $1.76        |       | $0.63                  |       |
| Change             |       | 61%         |       | 65%          |       | 85%          |       | 2%                     |       |

 

 

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

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

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

 

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***Key Performance Indicators***

 

Thefollowing table provides a summary of some of the key performance indicatorsthat may be used to assess our results of operations.  These comparisons are not necessarilyindicative of future results (gallons and dollars in thousands, except per unitamounts):

 
| ** **                                             | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                             | ** ** | **March 31,**               | ** ** |
| ** **                                             | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| Net income                                             |       | $                                | 17,389     |   | $ | 18,863 |   |
|                                                   |       |                             |       |   |   |
| Net income per diluted limited partner unit (1)        |       | $                                | 1.23       |   | $ | 1.40 |   |
|                                                   |       |                             |       |   |   |
| EBITDA (2)                                             |       | $                                | 25,889     |   | $ | 27,366 |   |
|                                                   |       |                             |       |   |   |
| Distributable cash flow (3)                            |       | $                                | 20,954     |   | $ | 21,996 |   |
|                                                   |       |                             |       |   |   |
| **Wholesale Segment:**                                 |       |                             |       |   |   |
| Volume (gallons)                                       |       | 891,032                          |       | 1,038,619 |   |
| Sales                                                  |       |                             |       |   |   |
| Distillates                                            |       | $                                | 959,257    |   | $ | 1,006,616 |   |
| Gasoline                                               |       | 874,687                          |       | 501,659 |   |
| Residual oil                                           |       | 12,129                           |       | 11,490 |   |
| Total                                                  |       | $                                | 1,846,073  |   | $ | 1,519,765 |   |
| Net product margin (4)                                 |       |                             |       |   |   |
| Distillates                                            |       | $                                | 34,020     |   | $ | 33,853 |   |
| Gasoline                                               |       | 8,711                            |       | 11,786 |   |
| Residual oil                                           |       | 2,856                            |       | 2,820 |   |
| Total                                                  |       | $                                | 45,587     |   | $ | 48,459 |   |
| **Commercial Segment:**                                |       |                             |       |   |   |
| Volume (gallons)                                       |       | 68,301                           |       | 75,728 |   |
| Sales                                                  |       | $                                | 118,672    |   | $ | 113,190 |   |
| Net product margin (4)                                 |       | $                                | 4,918      |   | $ | 4,928 |   |
| **Combined sales and net product  margin:**            |       |                             |       |   |   |
| Sales                                                  |       | $                                | 1,964,745  |   | $ | 1,632,955 |   |
| Net product margin (4)                                 |       | $                                | 50,505     |   | $ | 53,387 |   |
| Depreciation allocated to cost of sales                |       | 2,737                            |       | 2,673 |   |
| **Combined gross profit**                              |       | $                                | 47,768     |   | $ | 50,714 |   |
|                                                   |       |                             |       |   |   |
| **Weather conditions:**                                |       |                             |       |   |   |
| Normal heating degree days                             |       | 2,870                            |       | 2,870 |   |
| Actual heating degree days                             |       | 2,624                            |       | 2,977 |   |
| Variance from normal heating degree days               |       | (9%                              | )          | 4 | % |
| Variance from prior period actual heating degree  days |       | (12%                             | )          | 9 | % |

 

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

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

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

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

 

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

 
| ** **                                                                  | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                  | ** ** | **March 31,**               | ** ** |
| ** **                                                                  | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| **Reconciliation of net income to  EBITDA:**                                |       |                             |       |   |   |
| Net income                                                                  |       | $                                | 17,389     |   | $ | 18,863 |   |
| Depreciation and amortization and amortization of  deferred financing fees  |       | 4,049                            |       | 4,002 |   |
| Interest expense                                                            |       | 4,064                            |       | 3,776 |   |
| Income tax expense                                                          |       | 387                              |       | 725 |   |
| EBITDA                                                                      |       | $                                | 25,889     |   | $ | 27,366 |   |
|                                                                        |       |                             |       |   |   |
| **Reconciliation of net cash  provided by operating activities to EBITDA:** |       |                             |       |   |   |
| Net cash provided by operating activities                                   |       | $                                | 45,494     |   | $ | 111,230 |   |
| Net changes in operating assets and liabilities  and certain non-cash items |       | (24,056                          | )          | (88,365 | ) |
| Interest expense                                                            |       | 4,064                            |       | 3,776 |   |
| Income tax expense                                                          |       | 387                              |       | 725 |   |
| EBITDA                                                                      |       | $                                | 25,889     |   | $ | 27,366 |   |

 

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

 
| ** **                                                                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                   | ** ** | **March 31,**               | ** ** |
| ** **                                                                                   | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| **Reconciliation of net income to  distributable cash flow:**                                |       |                             |       |   |   |
| Net income                                                                                   |       | $                                | 17,389     |   | $ | 18,863 |   |
| Depreciation and amortization and amortization of  deferred financing fees                   |       | 4,049                            |       | 4,002 |   |
| Maintenance capital expenditures                                                             |       | (484                             | )          | (869 | ) |
| Distributable cash flow                                                                      |       | $                                | 20,954     |   | $ | 21,996 |   |
|                                                                                         |       |                             |       |   |   |
| **Reconciliation of net cash  provided by operating activities to distributable cash flow:** |       |                             |       |   |   |
| Net cash provided by operating activities                                                    |       | $                                | 45,494     |   | $ | 111,230 |   |
| Net changes in operating assets and liabilities  and certain non-cash items                  |       | (24,056                          | )          | (88,365 | ) |
| Maintenance capital expenditures                                                             |       | (484                             | )          | (869 | ) |
| Distributable cash flow                                                                      |       | $                                | 20,954     |   | $ | 21,996 |   |

 

***Consolidated Results***

 

Ourtotal sales for three months ended March 31, 2010 increased by$331.7 million, or 20%, to $1,964.7 million compared to$1,633.0 million for the same period in 2009.  Theincrease was driven primarily by significantly higher refined petroleum productprices for the three months ended March 31, 2010 compared to the sameperiod in 2009.  Our aggregate volume ofproduct sold decreased by approximately 155 million gallons, or 14%, to 959** **million gallons.  The decrease in volume primarily includesdecreases of approximately 173 million gallons and 19 million gallons in distillates and residual oil, respectively, attributable to warmertemperatures during the first quarter of 2010 compared to the same period in2009, increased competition in the marketplace, continued conservation andeconomic conditions.  The decrease involume sold was offset by a 28** **milliongallon increase in gasoline.  Our gross profit for the first quarterof 2010 was $47.7** **million, a decrease of $3.0** **million, or 6%, compared to $50.7** **millionfor the same period in 2009, primarily due to a lower net product margin ingasoline.

 

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*WholesaleSegment*

 

Distillates.  Wholesaledistillate sales for the three months ended March 31, 2010 were$959.3 million compared to $1,006.6 million for the three monthsended March 31, 2009.  The decreaseof $47.3 million, or 5%, was due to a 171 million gallon decrease involume sold due to warmertemperatures during the first quarter of 2010 compared to the same period in2009, increased competition in the marketplace, continued conservation andeconomic conditions, despite the increase in refined petroleum productprices.  Our net product margin fromdistillate sales increased, however, by $0.1 million to $34.0 millionfor the three months ended March 31, 2010 compared to $33.9 millionfor the same period in 2009, primarily attributable to improved unit marginsthrough sales and inventory management and favorable market conditions.

 

Gasoline.  Wholesalegasoline sales for the three months ended March 31, 2010 were$874.6 million compared to $501.7 million for the same period in2009.  The increase of $372.9 million, or 74%, was due primarily to significantly highergasoline prices and an increase in gasoline volume sold compared to the prioryear.  The increase in gasoline volume was due tosome select selling opportunities during the quarter.  Our net product margin from gasolinesales decreased by $3.1 million to $8.7 million compared to$11.8 million for the three months ended March 31, 2009, primarilyattributable to market pressure in the gasoline markets and unfavorable marketconditions.

 

Residual Oil.  Wholesaleresidual oil sales for the three months ended March 31, 2010 were$12.1 million compared to $11.5 million for the three months endedMarch 31, 2009.  The increase of$0.6 million, or 5%, was primarily due to the increase in refinedpetroleum product prices, despite a 5 million gallon decrease in residualoil volume sold.  The decrease in volumesold was primarily due to warmer temperatures during the first quarter of 2010compared to same period in 2009, continued conservation, economic conditionsand conversion and fuel switching due to the comparative price advantage ofnatural gas over residual oil.  Our net product margin contributionfrom residual oil sales was relatively flat at $2.8 million for each ofthe three months ended March 31, 2010 and 2009.

 

*CommercialSegment*

 

Inour Commercial segment, residual oil accounted for approximately 54% and 67% oftotal commercial volume sold for the three months ended March 31, 2010 and2009, respectively.  Distillates,gasoline and natural gas accounted for the remainder of the total volume sold.

 

Commercialresidual oil sales and volume sold for the three months ended March 31,2010 decreased by less than 1% and by 28%, respectively, compared to the sameperiod in 2009.  We attribute thedecreases in sales and volume sold to the competitive pricing from natural gasand reductions in production by certain industry participants in our markets.

 

*Selling, General and Administrative Expenses*

 

SG&Aexpenses decreased by $1.5 million, or 8%, to $16.6 million for thethree months ended March 31, 2010 compared to $18.1 million for thesame period in 2009.  The decrease wasprimarily due to decreases of $3.9 million in incentive compensation,$0.4 million in bad debt accruals and $0.2 million in compensationcost under the LTIP, offset by increases of $1.3 million in salaries,$0.8 million in professional fees, $0.3 million in costs associatedwith the expansion of our natural gas operations, $0.3 million in projectdevelopment costs and $0.3 million in various other SG&Aexpenses.  The overall decrease inSG&A expenses was offset by an increase of $1.0 million in legal,consulting and other expenses related to the FTC’s regulatory review of ourplanned acquisition of three refined petroleum terminal facilities in Newburgh,New York from Warex Terminals Corporation (see Note 17 of Notes toConsolidated Financial Statements).

 

*OperatingExpenses*

 

Operatingexpenses increased by $0.2 million, or 2%, to $8.7 million for thethree months ended March 31, 2010 compared to $8.5 million for thethree months ended March 31, 2009. The increase was primarily due to $0.3 million in expenses relatedto our leased storage facility in Oyster Bay (Commander) New York and$0.1 million in other operating expenses, offset by a decrease$0.2 million in operating expenses at our Albany, New York terminal.

 

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*Interest Expense*

 

Interestexpense for the three months ended March 31, 2010 increased by$0.3 million, or 8%, to $4.1 million compared to $3.8 millionfor the same period in 2009.  Weattribute the increase primarily to higher average balances on our workingcapital revolving credit facility from carrying higher average balances ofinventories and accounts receivable, reflecting increased refined petroleumproduct prices, as well as carrying more distillate barrels of inventory duringthe first quarter of 2010 compared to the first quarter of 2009.  The increase in interest expense was offsetby a decrease in the average interest rate for the first three months of 2010compared to the same period in 2009.

 

**Liquidityand Capital Resources**

 

***Liquidity***

 

Ourprimary liquidity needs are to fund our working capital requirements, capitalexpenditures and distributions.  Cashgenerated from operations and our working capital revolving credit facilityprovide our primary sources of liquidity. Working capital increased by $87.9 million to $383.1 millionat March 31, 2010 compared to $295.2 million at December 31,2009 as a result of the public offering discussed below.

 

On February 12, 2010, we paida cash distribution to our common and subordinated unitholders and our generalpartner of approximately $6.5 million for the fourth quarter of 2009.  On April 21, 2010, the board of directorsof our general partner declared a quarterly cash distribution of $0.4875 perunit for the period from January 1, 2010 throughMarch 31, 2010 ($1.95per unit on an annualized basis) to our common and subordinated unitholders ofrecord as of the close of business May 5, 2010.  Weexpect to pay the cash distribution of approximately $8.5 million onMay 14, 2010.

 

OnMarch 19, 2010, we completed our public offering of 3,910,000 common unitsrepresenting limited partner interests at a price of $22.75 per common unit,which included a 510,000 common unit purchase option exercised by theunderwriters.  Net proceeds wereapproximately $84.8 million,after deducting approximately $4.2 million in underwriting fees and offering expenses.  We used the net proceeds to reduceindebtedness under our credit agreement. See Note 15of Notes to Consolidated Financial Statements for additional informationrelated to the public offering.

 

***Capital Expenditures***

 

Ourterminalling operations require investments to expand, upgrade and enhanceexisting operations and to meet environmental and operations regulations.  We categorize our capital requirements aseither maintenance capital expenditures or expansion capital expenditures.  Maintenance capital expenditures representcapital expenditures to repair or replace partially or fully depreciated assetsto maintain the operating capacity of, or revenues generated by, existingassets and extend their useful lives. Maintenance capital expenditures include expenditures required to maintainequipment reliability, tankage and pipeline integrity and safety and to addresscertain environmental regulations.  Weanticipate that maintenance capital expenditures will be funded with cashgenerated by operations.  We hadapproximately $0.5 million and $0.9 million in maintenance capitalexpenditures for the three months ended March 31, 2010 and 2009,respectively, which are included in capital expenditures in the accompanyingconsolidated statements of cash flows. Repair and maintenance expenses associated with existing assets that areminor in nature and do not extend the useful life of existing assets arecharged to operating expenses as incurred.

 

Expansioncapital expenditures include expenditures to acquire assets to grow ourbusiness or expand our existing facilities, such as projects that increase ouroperating capacity or revenues by increasing tankage, diversifying productavailability at various terminals and adding terminals.  We have the ability to fund our expansioncapital expenditures through cash from operations or credit our agreement or byissuing additional equity.  We hadapproximately $1.4 million and $1.6 million in expansion capitalexpenditures for the three months ended March 31, 2010 and 2009,respectively.  Specifically, for thethree months ended March 31, 2010, expansion capital expendituresconsisted of approximately $1.1 million in costs related to our terminaland rail expansion project in Albany, New York and $0.3 million inbio-fuel conversion costs at our Chelsea, Massachusetts terminal.  The $1.1 million in costs in Albanyinclude a continuing program to bring previously out-of-permit tanks backonline, the installation of a marine vapor recovery system to allow for loadingand offloading of gasoline and ethanol and the conversion of two distillatestorage tanks to gasoline. Comparatively, for the three months ended March 31, 2009, expansioncapital expenditures included approximately $1.0 million at the Albany,New York terminal in costs related to bringing formerly out-of-permit tanksback online and to dock expansion and $0.6 million in additional terminalequipment at the Providence, Rhode Island terminal.

 

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

 

***Cash Flow***

 

Thefollowing table summarizes cash flow activity (in thousands):

 
| ** **                                | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|
| ** **                                | ** ** | **March 31,**               | ** ** |
| ** **                                | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| Net cash provided by operating activities |       | $                                | 45,494     |   | $ | 111,230 |   |
| Net cash used in investing activities     |       | $                                | (1,914     | ) | $ | (2,452 | ) |
| Net cash used in financing activities     |       | $                                | (43,492    | ) | $ | (106,734 | ) |

 

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

 

Netcash provided by operating activities was $45.5 million for the threemonths ended March 31, 2010 compared to $111.2 million for the sameperiod in 2009, for a quarter-over-quarter decrease in cash from operatingactivities of $65.7 million.  Thedecrease was primarily due to the quarter-over-quarter change in the fair valueof forward fixed price contracts of approximately $120.1 million and the$1.5 million decrease in net income. Specifically, the contracts supporting our forward fixed price hedgeprogram required margin payments of $11.4 million to the NYMEX due to market direction in the threemonths ended March 31, 2010, while for the three months ended March 31, 2009, similarhedging activity provided funds from the NYMEX of $108.7 million. Despite the quarter-over-quarter increase in refined petroleum productprices, the overall decrease in cash provided by operating activities wasoffset by the seasonal change in the carrying values of accounts receivablesand inventories.  Such carrying valuesprovided a combined $90.0 million in funds for the three months endedMarch 31, 2010 compared to $33.0 million for the three months endedMarch 31, 2009, an increase of $57.0 million.

 

Netcash used in investing activities was $1.9 million for the three monthsended March 31, 2010 compared to $2.5 million for the same period in2009, and included $0.5 million in maintenance capital expenditures and$1.4 million in expansion capital expenditures ($1.1 million in costsrelated to our terminal and rail expansion project in Albany, New York and$0.3 million in bio-fuel conversion costs at our Chelsea, Massachusettsterminal).  The $1.1 million incosts in Albany include a continuing program to bring previously out-of-permittanks back online, the installation of a marine vapor recovery system to allowfor loading and offloading of gasoline and ethanol and the conversion of twodistillate storage tanks to gasoline. Comparatively, for the three months ended March 31, 2009, net cashused in investing activities included $0.9 million in maintenance capitalexpenditures and $1.6 million in expansion capital expenditures($1.0 million at the Albany, New York terminal in costs related tobringing formerly out-of-permit tanks back online and to dock expansion and$0.6 million in additional terminal equipment at the Providence, RhodeIsland terminal).

 

Netcash used in financing activities was $43.5 million for the three monthsended March 31, 2010 compared to $106.7 million for the same periodin 2009, and included net payments on our credit facilities of$121.4 million, $6.5 million in cash distributions to our common andsubordinated unitholders and our general partner and $0.4 million inrepurchased units held for tax obligations related to units distributed underthe LTIP, offset by $84.8 million in net proceeds from our recent publicoffering.  Comparatively, for the threemonths ended March 31, 2009, net cash used in financing activitiesincluded $100.2 million in net payments on our credit facilities and$6.5 million in cash distributions to our common and subordinatedunitholders and our general partner.

 

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***Credit Agreement***

 

We,our general partner, our operating company and our operating subsidiaries havea four-year senior secured credit agreement. Pursuant to the credit agreement, we exercised our accordion feature(discussed below) and requested an increase in the Total WC RevolverCommitment (as defined in the credit agreement) in an amount equal to$100.0 million.  On December 4,2009, certain lenders under the credit agreement agreed to fund the $100.0 millionincrease, bringing the total available commitments under the credit agreementfrom $750.0 million to $850.0 million.  We repay amounts outstanding and reborrowfunds based on our working capital requirements and, therefore, classify as acurrent liability the portion of the working capital revolving credit facilitywe expect to pay down during the course of the year.  The long-term portion of the working capitalrevolving credit facility is the amount we expect to be outstanding during theentire year.  The credit agreement willmature on April 22, 2011.

 

Thereare three facilities under our credit agreement:

 

·              a working capital revolving credit facility to beused for working capital purposes and letters of credit in the principal amountequal to the lesser of our borrowing base and $750.0 million; the$750.0 million includes two $50.0 million seasonal overlinefacilities that are available each year only during the period between September 1and June 30;

 

·              an $85.0 million acquisition facility to beused for funding acquisitions similar to our business line that have a purchaseprice of $25.0 million or less or $35.0 million or less in theaggregate in any 12-month period; and

 

·              a $15.0 million revolving credit facility to beused for general purposes.

 

Inaddition, the credit agreement has an accordion feature whereby we may requeston the same terms and conditions of our then existing credit agreement,provided no Event of Default (as defined in the credit agreement) then exists,an increase to:  (1) the acquisitionfacility by up to another $50.0 million, for a total acquisition facilityof up to $135.0 million; and (2) the working capital revolving creditfacility by up to another $100.0 million, for atotal working capital revolving credit facility of up to $850.0 million.  Any such request for an increase by us mustbe in a minimum amount of $5.0 million, and no more than three suchrequests may be made for each facility. We, however, cannot provide assurance that our lending group will agreeto fund any request by us for additional amounts in excess of the totalavailable commitments of $850.0** **million.

 

Availabilityunder our working capital revolving credit facility is subject to a borrowingbase which is redetermined from time to time and based on specific advancerates on eligible current assets.  Underthe credit agreement, we can borrow only up to the level of our then currentborrowing base.  Availability under ourborrowing base may be affected by events beyond our control, such as changes inrefined petroleum product prices, collection cycles, counterparty performance,advance rates and limits and general economic conditions.  These and other events could require us toseek waivers or amendments of covenants or alternative sources of financing orto reduce expenditures.  We can provideno assurance that such waivers, amendments or alternative financing could beobtained, or, if obtained, would be on terms acceptable to us.

 

Borrowingsunder the working capital revolving credit facility bear interest at(1) the Eurodollar rate plus 1.75% to 2.25%, (2) the cost of fundsrate plus 1.75% to 2.25%, or (3) the base rate plus 0.75% to 1.25%, eachdepending on the pricing level provided in the credit agreement, which in turndepends upon the Combined Interest Coverage Ratio (as defined in the creditagreement).  Borrowings under theacquisition and revolving credit facilities bear interest at (1) theEurodollar rate plus 2.25% to 2.75%, (2) the cost of funds rate plus 1.75%to 2.25%, or (3) the base rate plus 0.75% to 1.25%, each depending on thepricing level provided in the credit agreement, which in turn depends upon theCombined Interest Coverage Ratio.  Theaverage interest rates for the credit agreement were 3.3% and 3.9% for thethree months ended March 31, 2010 and 2009, respectively.

 

Weincur a letter of credit fee of 1.75% 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) equal to 0.3% to 0.375% per annum, depending on thepricing level and the Combined Interest Coverage Ratio provided in the creditagreement.  We also incur a facility feeof 0.1% per annum on any unexercised seasonal overline facility during theperiod between September 1 and June 30 and a seasonal overline fee of$30,000 each time we elect to exercise either of the seasonal overlinefacilities.

 

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Asof March 31, 2010, we had total borrowings outstanding under our creditagreement of $412.4 million, including $71.2 million outstanding onour acquisition facility.  In addition,we had outstanding letters of credit of $32.8 million.  The total remaining availability for borrowingsand letters of credit at March 31, 2010 and December 31, 2009 was$404.8 million and $211.2 million, respectively.

 

Thecredit agreement imposes financial covenants that require us to maintaincertain minimum working capital amounts, capital expenditure limits, a minimumEBITDA ratio, a minimum combined interest coverage ratio and a maximum leverageratio.  On January 26, 2010, thelenders under the credit agreement consented to increase our capital expenditureslimit for the fiscal year ending December 31, 2010 from $10.0 millionto $20.0 million.  We were incompliance with the foregoing covenants at March 31, 2010.  The credit agreement also contains arepresentation whereby there can be no event or circumstance, eitherindividually or in the aggregate, that has had or could reasonably be expectedto have a Material Adverse Effect (as defined in the credit agreement).

 

Thecredit agreement provides that in each calendar year the outstanding amountunder the working capital revolving credit facility must be equal to or lessthan $263.0 million for a period of ten consecutive calendar days.  It is anticipated that the seasonal decreasein working capital as we exit our heating season will contribute to a decreasein borrowings outstanding under our credit agreement.

 

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

 

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

 

Thelending group under the credit agreement includes the followinginstitutions:  Bank of America, N.A.;Standard Chartered Bank; JPMorgan Chase Bank, N.A.; Societe Generale; RBSCitizens, National Association; Sovereign Bank; Fortis Capital Corp.; WebsterBank National Association; KeyBank National Association; TD Bank, N.A.(f/k/a TD BankNorth, N.A.); Wells Fargo Bank, N.A.; Wachovia Bank, NationalAssociation; Calyon New York Branch; and The Bank of Tokyo-Mitsubishi UFJ, Ltd.

 

***Off-Balance Sheet Arrangements***

 

Wehave no off-balance sheet arrangements.

 

**CriticalAccounting Policies and Estimates**

 

Management’sDiscussion and Analysis of Financial Condition and Results of Operationsdiscusses our consolidated financial statements, which have been prepared inaccordance with GAAP.  The preparation ofthese consolidated financial statements requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities andthe disclosure of contingent assets and liabilities at the date of theconsolidated financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results may differ from these estimates under differentassumptions or conditions.

 

Theseestimates are based on our knowledge and understanding of current conditionsand actions that we may take in the future. Changes in these estimates will occur as a result of the passage of timeand the occurrence of future events.  Wehave identified the following estimates that, in our opinion, are subjective innature, require the exercise of judgment, and involve complex analysis:  inventory, leases, revenue recognition,derivative financial instruments and environmental and other liabilities.

 

Thesignificant accounting policies and estimates that we have adopted and followedin the preparation of our consolidated financial statements are detailed inNote 2 of Notes to Consolidated Financial Statements, “Summary ofSignificant Accounting Policies” included in our Annual Report on Form 10-Kfor the year ended December 31, 2009. There have been no subsequent changes in these policies and estimatesthat had a significant impact on our financial condition and results ofoperations for the periods covered in this report.

 

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**Item 3.        Quantitative and Qualitative Disclosures about Market Risk**

 

Marketrisk is the risk 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 two interest rate collars and aforward starting swap to manage exposure to interest rate risk and variousderivative instruments to manage exposure to commodity risk.

 

***Interest Rate Risk***

 

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

 

Borrowingsunder the working capital revolving credit facility bear interest at(1) the Eurodollar rate plus 1.75% to 2.25%, (2) the cost of fundsrate plus 1.75% to 2.25%, or (3) the base rate plus 0.75% to 1.25%, eachdepending on the pricing level provided in the credit agreement, which in turndepends upon the Combined Interest Coverage Ratio (as defined in the creditagreement).  Borrowings under the acquisitionand revolving credit facilities bear interest at (1) the Eurodollar rateplus 2.25% to 2.75%, (2) the cost of funds rate plus 1.75% to 2.25%, or(3) the base rate plus 0.75% to 1.25%, each depending on the pricing levelprovided in the credit agreement, which in turn depends upon the CombinedInterest Coverage Ratio.  The averageinterest rates for the credit agreement were approximately 3.3% and 3.9% forthe three months ended March 31, 2010 and 2009, respectively.

 

Asof March 31, 2010, we had total borrowings outstanding under the creditagreement of $412.4 million.  Theimpact of a 1% increase in the interest rate on this amount of debt would haveresulted in an increase in interest expense, and a corresponding decrease inour results of operations, of approximately $4.1 million annually,assuming, however, that our indebtedness remained constant throughout the year.

 

We executed two zero premiuminterest rate collars with major financial institutions.  Each collar is designated and accounted foras a cash flow hedge.  The first collar,which became effective on May 14,2007 and expires on May 14,2011, is used to hedge the variability in interest payments due to changes inthe three-month LIBOR rate with respect to $100.0 million of three-month LIBOR-based borrowings.  Under the first collar, we capped ourexposure at a maximum three-month LIBOR rate of 5.75% and established a minimumfloor rate of 3.75%.  Whenever thethree-month LIBOR rate is greater than the cap, we receive from the respectivefinancial institution the difference between the cap and the currentthree-month LIBOR rate on the $100.0 million of three-month LIBOR-based borrowings.  Conversely, whenever the three-month LIBORrate is lower than the floor, we remit to the respective financial institutionthe difference between the floor and the current three-month LIBOR rate on the$100.0 millionof three-month LIBOR-based borrowings. As of March 31, 2010, the three-month LIBOR rate of 0.25%was lower than the floor rate.  As aresult, in April 2010, we remitted to the respective financial institutionthe difference between the floor rate and the current rate which amounted toapproximately $428,000.

 

On September 29, 2008, we executed our second zero premium interest ratecollar.  The second collar, which becameeffective on October 2,2008 and expires on October 2, 2013,is used to hedge the variability in cash flows in monthly interest paymentsmade on our $100.0 millionone-month LIBOR-based borrowings (and subsequent refinancings thereof) due tochanges in the one-month LIBOR rate. Under the second collar, we capped our exposure at a maximum one-monthLIBOR rate of 5.50% and established a minimum floor rate of 2.70%.  Whenever the one-month LIBOR rate is greaterthan the cap, we receive from the respective financial institution thedifference between the cap and the current one-month LIBOR rate on the $100.0 million of one-month LIBOR-based borrowings.  Conversely, whenever the one-month LIBOR rateis lower than the floor, we remit to the respective financial institution thedifference between the floor and the current one-month LIBOR rate on the $100.0 million of one-month LIBOR-based borrowings.  As of March 31, 2010, the one-month LIBOR rate of 0.23% was lowerthan the floor rate.  As a result, in April 2010,we remitted to the respective financial institution the difference between thefloor rate and the current rate which amounted to approximately $206,000.

 

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

 

***Commodity Risk***

 

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

 

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

 

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

 

AtMarch 31, 2010, the fair value of all of our commodity risk derivativeinstruments and the change in fair value that would be expected from a 10%price increase or decrease are shown in the table below (in thousands):

 
| ** **                    | ** ** | ** **                                            | ** ** | **Gain (Loss)**                             | ** ** |
|-------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                    | ** ** | **Fair Value at  March 31, 2010** | ** ** | **Effect of 10%  Price Increase** | ** ** | **Effect of 10%  Price Decrease** | ** ** |
| NYMEX contracts               |       | $                                                     | (22,225    | )                                                | $          | (38,179 | ) | $ | 38,179 |   |
| Swaps, options and other, net |       | 746                                                   |       | (4,634                                           | )          | 1,498 |   |
|                          |       | $                                                     | (21,479    | )                                                | $          | (42,813 | ) | $ | 39,677 |   |

 

Thefair values of the futures contracts are based on quoted market prices obtainedfrom the NYMEX.  The fair value of theswaps and option contracts are estimated based on quoted prices from varioussources such as independent reporting services, industry publications andbrokers.  These quotes are compared tothe contract price of the swap, which approximates the gain or loss that wouldhave been realized if the contracts had been closed out at March 31,2010.  For positions where independentquotations are not available, an estimate is provided, or the prevailing marketprice at which the positions could be liquidated is used.  All hedge positions offset physical exposuresto the spot market; none of these offsetting physical exposures are included inthe above table.  Price-risksensitivities were calculated by assuming an across-the-board 10% increase ordecrease in price regardless of term or historical relationships between thecontractual price of the instruments and the underlying commodity price.  In the event of an actual 10% change inprompt month prices, the fair value of our derivative portfolio would typicallychange less than that shown in the table due to lower volatility in out-monthprices.  We have a daily marginrequirement to maintain a cash deposit with our broker based on the prior day’smarket results on open futures contracts. The balance of this deposit will fluctuate based on our open marketpositions and the commodity exchange’s requirements.  The brokerage margin balance was$10.3 million at March 31, 2010.

 

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

 

**Item 4.        Controls and Procedures**

 

***Disclosure Controls and Procedures***

 

Wemaintain disclosure controls and procedures that are designed to ensure thatthe information required to be disclosed by us in the reports we file or submitunder the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded,processed, summarized and reported within the time periods specified in SECrules and forms and that information is accumulated and communicated toour management, including our principal executive officer and principalfinancial officer, as appropriate, to allow timely decisions regarding requireddisclosure.  Under the supervision and with the participation of ourprincipal executive officer and principal financial officer, managementevaluated the effectiveness of our disclosure controls and procedures (asdefined in Rules 13a-15(e) or 15d-15(e) of the ExchangeAct).  Based on that evaluation, our principal executive officer andprincipal financial officer concluded that our disclosure controls andprocedures were effective as of March 31, 2010.

 

Subsequentto the quarter ended March 31, 2010, following a change in the billingprotocol for a certain type of sales transaction for a specific customer,management discovered that fuel tax credits associated with such salestransactions had not been properly recorded. This coding error resulted in our sales and net income being understatedand accrued tax liability being overstated for the quarter ended March 31,2010.  As a result, management and theAudit Committee of our general partner made the decision to restate ourconsolidated financial statements as of and for the period ended March 31,2010. The Partnership has primary as well as secondary controls in place, anddocumented, with respect to state and federal fuel taxes.  The Partnership discovered the error during anormal course control procedure.  Theerror was limited to one particular type of sales transaction (i.e., not asystemic issue).  The impact was limitedto two offsetting entries:  the taxliability account and sales account.  ThePartnership believes that: (1) bills to this customer were accurate in thecourse of the affected period, and no other customers were affected by theerror, (2) the error did not cause an under/overpayment of taxes, and (3) therewas no impact on previously reported net cash provided by operatingactivities.  Management has determinedthat the error did not rise to the level of a material weakness.  The error, which resulted from a unique setof invoicing circumstances for a particular customer, did expose a significantdeficiency.  The Partnership’s existinginternal control framework has been supplemented with an enhanced controlprocess in relation to any new large, unique, or abnormal sales contracts.  After re-evaluating our disclosure controlsand procedures in light of the error and resulting deficiency described above,our principal executive officer and principal financial officer concluded thatour disclosure controls and procedures were effective.

 

***Internal Control over FinancialReporting***

 

Exceptas described above, there has not been any change in our internal control overfinancial reporting that occurred during the quarter ended March 31, 2010that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**PART II.  OTHER INFORMATION**

 

 

**Item 1.        Legal Proceedings**

 

***General***

 

Althoughwe may, from time to time, be involved in litigation and claims arising out ofour operations in the normal course of business, we do not believe that we area party to any litigation that will have a material adverse impact on ourfinancial condition or results of operations. Except as described below and in Note 12 in this Quarterly Reporton Form 10-Q, we are not aware of any significant legal or governmentalproceedings against us, or contemplated to be brought against us.  We maintain insurance policies with insurersin amounts and with coverage and deductibles as our general partner believesare reasonable and prudent.  However, wecan provide no assurance that this insurance will be adequate to protect usfrom all material expenses related to potential future claims or that theselevels of insurance will be available in the future at economically acceptableprices.

 

***Other***

 

OnOctober 22, 2009, the Federal Trade Commission (“FTC”) issued a Civil InvestigativeDemand and a Subpoena Duces Tecum in connection with the FTC’s regulatoryreview of our planned acquisition of three refined petroleum terminalfacilities in Newburgh, New York from Warex Terminals Corporation.  In April 2010,the FTC closed its regulatory review and determined that no further action iswarranted by the FTC.  We currentlyexpect to close the transaction by the third quarter of 2010.

 

Certainof our employees at our terminal in Oyster Bay (Commander), New York wereemployed under a collective bargaining agreement that expired in April 2010.  On February 25, 2010, we received apetition filed with the National Labor Relations Board (“NLRB”) by the unionrepresenting certain employees assigned to Glenwood Landing and Inwood, New York(“Local 419”) seeking to replace the incumbent union at our Oyster Bay,New York terminal (“Local 355”) with respect to certain hourlyemployees.  On March 1, 2010,Local 355 filed a disclaimer of representation with the NLRB with respectto the Oyster Bay hourly employees.  Arepresentation election was held in April 2010 pursuant to the terms of aStipulated Election Agreement with Local 419 with respect to theseemployees.  Local 419 was elected asthe representative of these employees, and we will negotiate a new collectivebargaining agreement with Local 419. We do not believe the results of these negotiations will have a materialadverse effect on our operations.

 

**Item 1A.     Risk Factors**

 

Inaddition to other information set forth in this report, you should carefullyconsider the factors discussed in Part I, Item 1A, “Risk Factors”in our Annual Report on Form 10-K for the year ended December 31,2009, which could materially affect our business, financial condition or futureresults.

 

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| **Item 6.** | **Exhibits** |
|-------------|--------------|
|        |         |   |   |   |
| 3.1         |         | — |   | Third Amended and Restated  Agreement of Limited Partnership of Global Partners LP dated as of  December 9, 2009 (incorporated herein by reference to Exhibit 3.1  to the Current Report on Form 8-K filed on December 15, 2009). |
|        |         |   |   |   |
| 31.1        |         | — |   | Rule 13a-14(a)/15d-14(a) Certification  of Principal Executive Officer of Global GP LLC, general partner of Global  Partners LP. |
|        |         |   |   |   |
| 31.2        |         | — |   | Rule 13a-14(a)/15d-14(a) Certification  of Principal Financial Officer of Global GP LLC, general partner of Global  Partners LP. |
|        |         |   |   |   |
| 32.1        | †       | — |   | Section 1350  Certification of Chief Executive Officer of Global GP LLC, general partner of  Global Partners LP. |
|        |         |   |   |   |
| 32.2        | †       | — |   | Section 1350  Certification of Chief Financial Officer of Global GP LLC, general partner of  Global Partners LP. |

 

 

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| **†** | Previously  filed. |
|------------|--------------------|

 

48

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**SIGNATURES**

 

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

 

 
|                               | **GLOBAL PARTNERS LP** |
|------------------------------------|------------------------|
|                               | By:                    | Global  GP LLC, |
|                               |                   | its  general partner |
|                               |                   |   |
|                               |                   |   |
| Dated:  November 2, 2010 |                   | By: | /s/  Eric Slifka |   |
|                               |                   |   | Eric  Slifka |
|                               |                   |   | President  and Chief Executive Officer |
|                               |                   |   | (Principal  Executive Officer) |
|                               |                   |   |
|                               |                   |   |
| Dated:  November 2, 2010 |                   | By: | /s/  Thomas J. Hollister |   |
|                               |                   |   | Thomas  J. Hollister |
|                               |                   |   | Chief  Operating Officer and Chief Financial Officer |
|                               |                   |   | (Principal  Financial Officer) |

 

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**INDEX TO EXHIBITS**

 
| **Exhibit  Number** | ** ** | ** ** | ** ** | **Description** |
|---------------------|------------|------------|------------|-----------------|
|                |       |       |       |            |   |
| 3.1                 |       |       | —     |            | Third Amended and Restated  Agreement of Limited Partnership of Global Partners LP dated as of  December 9, 2009 (incorporated herein by reference to Exhibit 3.1  to the Current Report on Form 8-K filed on December 15, 2009). |
|                |       |       |       |            |   |
| 31.1                |       |       | —     |            | Rule 13a-14(a)/15d-14(a) Certification  of Principal Executive Officer of Global GP LLC, general partner of Global  Partners LP. |
|                |       |       |       |            |   |
| 31.2                |       |       | —     |            | Rule 13a-14(a)/15d-14(a) Certification  of Principal Financial Officer of Global GP LLC, general partner of Global  Partners LP. |
|                |       |       |       |            |   |
| 32.1                | †     |       | —     |            | Section 1350  Certification of Chief Executive Officer of Global GP LLC, general partner of  Global Partners LP. |
|                |       |       |       |            |   |
| 32.2                | †     |       | —     |            | Section 1350  Certification of Chief Financial Officer of Global GP LLC, general partner of  Global Partners LP. |

 

 

----

| **†** | Previously  filed. |
|------------|--------------------|

 

 

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