Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

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**FORM 10-Q**

 

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**(Mark One)**

 
| **x**                                                                                                                                                                                                         | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                    | ** ** | ** **                                                                                               |
| **For the quarterly period ended September 30, 2008**                                                                                                                                                    |
| ** **                                                                                                                                                                                                    | ** ** | ** **                                                                                               |
| **OR**                                                                                                                                                                                                        |
| ** **                                                                                                                                                                                                    | ** ** | ** **                                                                                               |
| **o**                                                                                                                                                                                                         | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                    | ** ** | ** **                                                                                               |
| **For the transition period  from              to              ** |

 

**Commission file number 001-32593**

 

**Global Partners LP**

(Exact name of registrant as specified in its charter)

 

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

 

**P.O. Box9161800 South StreetWaltham, Massachusetts 02454-9161** (Address of principal executiveoffices, including zip code)

 

**(781)894-8800**(Registrant’s telephonenumber, 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.      Yesx No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

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

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yeso No x

 

The issuer had 7,428,139 common units and5,642,424 subordinated units outstanding as of November 3, 2008.

 

 

 

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Table of Contents

 

**TABLE OF CONTENTS**

 
| **PART I.         FINANCIAL INFORMATION**                                                      | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                  | ** ** |
| **Item 1.       Financial  Statements**                                                                       | ** ** |
| ** **                                                                                                                                  | ** ** |
| Consolidated Balance Sheets as of September 30, 2008 and  December 31, 2007                                                       |       |
|                                                                                                                                        |       |
| Consolidated Statements of Income for the three and nine months ended  September 30, 2008 and 2007                                     |       |
|                                                                                                                                        |       |
| Consolidated Statements of Cash Flows for the nine months ended  September 30, 2008 and 2007                                           |       |
|                                                                                                                                        |       |
| Consolidated Statements of Partners’ Equity for the nine months ended  September 30, 2008                                         |       |
|                                                                                                                                        |       |
| Notes to Consolidated Financial Statements                                                                                                  |       |
|                                                                                                                                        |       |
| **Item 2.       Management’s  Discussion and Analysis of Financial Condition and Results of Operations** | ** ** |
| ** **                                                                                                                                  | ** ** |
| **Item 3.       Quantitative  and Qualitative Disclosures about Market Risk**                                 | ** ** |
| ** **                                                                                                                                  | ** ** |
| **Item 4.       Controls and Procedures**                                                                     | ** ** |
| ** **                                                                                                                                  | ** ** |
| **PART II.       OTHER INFORMATION**                                                                     | ** ** |
| ** **                                                                                                                                  | ** ** |
| **Item 1.       Legal  Proceedings**                                                                          | ** ** |
| ** **                                                                                                                                  | ** ** |
| **Item 1A.    Risk  Factors**                                                                                                | ** ** |
| ** **                                                                                                                                  | ** ** |
| **Item 6.       Exhibits**                                                                                    | ** ** |
| ** **                                                                                                                                  | ** ** |
| **SIGNATURES**                                                                                                                              | ** ** |
| ** **                                                                                                                                  | ** ** |
| **INDEX TO  EXHIBITS**                                                                                                                      | ** ** |

 

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Table of Contents

 

**Item 1.   FinancialStatements**

 

**GLOBAL PARTNERS LP**

**CONSOLIDATED BALANCE SHEETS**

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

**(Unaudited)**

 
| ** **                                                                                                               | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                               | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                          |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                |       | $                            | 605        |                        | $          | 2,110 |   |
| Accounts receivable, net                                                                                                 |       | 349,432                      |       | 439,165                     |       |
| Accounts receivable—affiliates                                                                                      |       | 2,768                        |       | 4,308                       |       |
| Inventories                                                                                                              |       | 359,250                      |       | 484,259                     |       |
| Brokerage margin deposits                                                                                                |       | 5,397                        |       | 12,545                      |       |
| Fair value of forward fixed price contracts                                                                              |       | 48,221                       |       | 742                         |       |
| Prepaid expenses and other current assets                                                                                |       | 22,632                       |       | 17,736                      |       |
| Total current assets                                                                                                     |       | 788,305                      |       | 960,865                     |       |
| Property and equipment, net                                                                                              |       | 161,631                      |       | 161,734                     |       |
| Intangible assets, net                                                                                                   |       | 32,072                       |       | 34,168                      |       |
| Other assets                                                                                                             |       | 2,789                        |       | 2,460                       |       |
| Total assets                                                                                                             |       | $                            | 984,797    |                        | $          | 1,159,227 |   |
| ** **                                                                                                               | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| **Liabilities and partners’ equity**                                                                                | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Current liabilities:                                                                                                     |       |                         |       |                        |       |
| Accounts payable                                                                                                         |       | $                            | 292,870    |                        | $          | 371,341 |   |
| Working capital revolving credit  facility—current portion                                                          |       | 250,579                      |       | 304,800                     |       |
| Environmental liabilities—current portion                                                                           |       | 876                          |       | 876                         |       |
| Note payable, other                                                                                                      |       | —                       |       | 1,239                       |       |
| Accrued expenses and other current  liabilities                                                                          |       | 51,543                       |       | 69,762                      |       |
| Obligations on forward fixed price  contracts and other derivatives                                                      |       | 2,803                        |       | 41,892                      |       |
| Total current liabilities                                                                                                |       | 598,671                      |       | 789,910                     |       |
| Working capital revolving credit  facility—less current portion                                                     |       | 146,721                      |       | 119,000                     |       |
| Acquisition facility                                                                                                     |       | 71,200                       |       | 71,200                      |       |
| Environmental liabilities—less current  portion                                                                     |       | 7,912                        |       | 8,340                       |       |
| Accrued pension benefit cost                                                                                             |       | 7,061                        |       | 5,236                       |       |
| Deferred compensation                                                                                                    |       | 1,618                        |       | 1,481                       |       |
| Other long-term liabilities                                                                                              |       | 3,842                        |       | 3,709                       |       |
| Total liabilities                                                                                                        |       | 837,025                      |       | 998,876                     |       |
| ** **                                                                                                               | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| **Partners’ equity**                                                                                                | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Common unitholders (7,428,139 units issued  and outstanding at September 30, 2008 and December 31, 2007)       |       | 159,699                      |       | 165,330                     |       |
| Subordinated unitholders (5,642,424 units  issued and outstanding at September 30, 2008 and December 31, 2007) |       | (6,818                       | )          | (2,116                      | )          |
| General partner interest (230,303  equivalent units outstanding at September 30, 2008 and December 31,  2007)  |       | (489                         | )          | (147                        | )          |
| Accumulated other comprehensive loss                                                                                     |       | (4,620                       | )          | (2,716                      | )          |
| Total partners’ equity                                                                                              |       | 147,772                      |       | 160,351                     |       |
| Total liabilities and partners’ equity                                                                              |       | $                            | 984,797    |                        | $          | 1,159,227 |   |

 

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

 

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**GLOBAL PARTNERS LP**

**CONSOLIDATED STATEMENTS OF INCOME**

**(In thousands, except per unitdata)**

**(Unaudited)**

 
| ** **                                                                    | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Sales                                                                         |       | $                                                    | 2,272,079  |                                                | $          | 1,598,461 |   | $ | 7,290,780 |   | $ | 4,555,727 |   |
| Cost of sales                                                                 |       | 2,246,151                                            |       | 1,574,514                                           |       | 7,206,563 |   | 4,467,906 |   |
| Gross profit                                                                  |       | 25,928                                               |       | 23,947                                              |       | 84,217 |   | 87,821 |   |
|                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Costs and operating expenses:                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Selling, general and administrative  expenses                                 |       | 10,457                                               |       | 9,476                                               |       | 31,712 |   | 34,340 |   |
| Operating expenses                                                            |       | 8,429                                                |       | 6,939                                               |       | 26,225 |   | 19,139 |   |
| Amortization expenses                                                         |       | 738                                                  |       | 388                                                 |       | 2,199 |   | 1,104 |   |
| Total costs and operating expenses                                            |       | 19,624                                               |       | 16,803                                              |       | 60,136 |   | 54,583 |   |
|                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Operating income                                                              |       | 6,304                                                |       | 7,144                                               |       | 24,081 |   | 33,238 |   |
|                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Interest expense                                                              |       | (5,297                                               | )          | (4,614                                              | )          | (15,414 | ) | (10,453 | ) |
| Gain on sale of investment                                                    |       | —                                               |       | —                                              |       | — |   | 14,118 |   |
|                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Income before income tax  expense                                             |       | 1,007                                                |       | 2,530                                               |       | 8,667 |   | 36,903 |   |
|                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Income tax expense                                                            |       | —                                               |       | —                                              |       | (295 | ) | (888 | ) |
|                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Net income                                                                    |       | 1,007                                                |       | 2,530                                               |       | 8,372 |   | 36,015 |   |
|                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Less: General partner’s interest in net  income                          |       | (17                                                  | )          | (44                                                 | )          | (144 | ) | (712 | ) |
|                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Limited partners’ interest in net income                                 |       | $                                                    | 990        |                                                | $          | 2,486 |   | $ | 8,228 |   | $ | 35,303 |   |
|                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Net income per limited partner unit, basic  and diluted(1)                    |       | $                                                    | 0.08       |                                                | $          | 0.19 |   | $ | 0.62 |   | $ | 0.66 |   |
|                                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Weighted average limited partners’ units  outstanding, basic and diluted |       | 13,071                                               |       | 13,071                                              |       | 13,071 |   | 12,233 |   |

 

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

 

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

 

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**GLOBAL PARTNERS LP**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

**(Unaudited)**

 
| ** **                                                                                   | ** ** | **Nine Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2008**                                       | ** ** | **2007** | ** ** |
|                                                                                         |       |                                           |       |   |   |
| **Cash flows from operating activities**                                                     |       |                                           |       |   |   |
| Net income                                                                                   |       | $                                              | 8,372      |   | $ | 36,015 |   |
| Adjustments to reconcile net income to net  cash provided by (used in) operating activities: |       |                                           |       |   |   |
| Depreciation and amortization                                                                |       | 10,584                                         |       | 5,791 |   |
| Amortization of deferred financing fees                                                      |       | 657                                            |       | 316 |   |
| Loss on disposition of property and  equipment and other                                     |       | 6                                              |       | — |   |
| Stock-based compensation expense                                                             |       | 555                                            |       | 100 |   |
| Gain on sale of investment                                                                   |       | —                                         |       | (14,118 | ) |
| Changes in operating assets and  liabilities:                                                |       |                                           |       |   |   |
| Accounts receivable                                                                          |       | 89,733                                         |       | (130,782 | ) |
| Accounts receivable – affiliate                                                         |       | 1,540                                          |       | (2,605 | ) |
| Inventories                                                                                  |       | 125,008                                        |       | (91,107 | ) |
| Broker margin deposits                                                                       |       | 7,148                                          |       | (8,837 | ) |
| Prepaid expenses, all other current assets  and other assets                                 |       | (6,095                                         | )          | 4,037 |   |
| Accounts payable                                                                             |       | (78,470                                        | )          | 78,608 |   |
| Income taxes payable                                                                         |       | 109                                            |       | (1,164 | ) |
| Change in fair value of forward fixed price  contracts                                       |       | (86,568                                        | )          | 89,224 |   |
| Accrued expenses and all other current  liabilities                                          |       | (18,455                                        | )          | 14,848 |   |
| Other long-term liabilities                                                                  |       | —                                         |       | 35 |   |
| Net cash provided by (used in) operating  activities                                         |       | 54,124                                         |       | (19,639 | ) |
|                                                                                         |       |                                           |       |   |   |
| **Cash flows from investing activities**                                                     |       |                                           |       |   |   |
| Terminal acquisitions                                                                        |       | —                                         |       | (102,620 | ) |
| Terminal pre-acquisition deposits,  construction expenditures and other costs                |       | —                                         |       | (5,376 | ) |
| Proceeds from sale of investment                                                             |       | —                                         |       | 15,262 |   |
| Capital expenditures                                                                         |       | (8,301                                         | )          | (4,226 | ) |
| Proceeds from sale of property and  equipment                                                |       | 13                                             |       | 7 |   |
| Net cash used in investing activities                                                        |       | (8,288                                         | )          | (96,953 | ) |
|                                                                                         |       |                                           |       |   |   |
| **Cash flows from financing activities**                                                     |       |                                           |       |   |   |
| Proceeds from common unit issuance, net of  discount and fees                                |       | —                                         |       | 49,099 |   |
| (Payments on) proceeds from credit  facilities, net                                          |       | (26,500                                        | )          | 83,700 |   |
| Payments on note payable, other                                                              |       | (1,239                                         | )          | (237 | ) |
| Distributions to partners                                                                    |       | (19,602                                        | )          | (16,903 | ) |
| Net cash (used in) provided by financing  activities                                         |       | (47,341                                        | )          | 115,659 |   |
|                                                                                         |       |                                           |       |   |   |
| Decrease in cash and cash equivalents                                                        |       | (1,505                                         | )          | (933 | ) |
| Cash and cash equivalents at beginning of  period                                            |       | 2,110                                          |       | 3,861 |   |
| Cash and cash equivalents at end of period                                                   |       | $                                              | 605        |   | $ | 2,928 |   |
|                                                                                         |       |                                           |       |   |   |
| **Supplemental information**                                                                 |       |                                           |       |   |   |
| Cash paid during the period for interest                                                     |       | $                                              | 15,414     |   | $ | 9,497 |   |

* *

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

 

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**GLOBAL PARTNERS LP**

**CONSOLIDATED STATEMENTS OFPARTNERS’ EQUITY**

**(In thousands)**

**(Unaudited)**

 
| ** **                                     | ** ** | ** **      | ** ** | ** **       | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** **         | ** ** |
|------------------------------------------------|------------|-----------------|------------|------------------|------------|--------------|------------|-------------------|------------|--------------------|------------|
| ** **                                     | ** ** | ** **      | ** ** | ** **       | ** ** | **General**  | ** ** | **Other**         | ** ** | **Total**          | ** ** |
| ** **                                     | ** ** | **Common**      | ** ** | **Subordinated** | ** ** | **Partner**  | ** ** | **Comprehensive** | ** ** | **Partners’** | ** ** |
| ** **                                     | ** ** | **Unitholders** | ** ** | **Unitholders**  | ** ** | **Interest** | ** ** | **Loss**          | ** ** | **Equity**         | ** ** |
|                                           |       |            |       |             |       |         |       |              |       |               |       |
| **Balance at December 31, 2007**          |       | $               | 165,330    |             | $          | (2,116       | )          | $                 | (147       | )                  | $          | (2,716 | ) | $ | 160,351 |   |
| Stock-based compensation                       |       | 555             |       | —           |       | —       |       | —            |       | 555                |       |
| Distributions to partners                      |       | (10,863         | )          | (8,253           | )          | (486         | )          | —            |       | (19,602            | )          |
| Comprehensive income:                          |       |            |       |             |       |         |       |              |       |               |       |
| Net income                                     |       | 4,677           |       | 3,551            |       | 144          |       | —            |       | 8,372              |       |
| Other comprehensive income:                    |       |            |       |             |       |         |       |              |       |               |       |
| Change in fair value of interest rate  collars |       | —          |       | —           |       | —       |       | (367              | )          | (367               | )          |
| Change in pension liability                    |       | —          |       | —           |       | —       |       | (1,537            | )          | (1,537             | )          |
| Total comprehensive income                     |       | —          |       | —           |       | —       |       | —            |       | 6,468              |       |
| **Balance at September 30, 2008**         |       | $               | 159,699    |             | $          | (6,818       | )          | $                 | (489       | )                  | $          | (4,620 | ) | $ | 147,772 |   |

 

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

 

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 1.**       Organizationand Basis of Presentation

 

**Organization**

 

Global Partners LP (the “Partnership”) is a publicly traded masterlimited partnership that engages in the wholesale and commercial distributionof refined petroleum products and small amounts of natural gas and providesancillary services to companies domestically and, on a limited basis,internationally.

 

The Partnership has four operating subsidiaries:  Global Companies** **LLC,its subsidiary, Glen Hes Corp., Global Montello Group Corp. and ChelseaSandwich** **LLC (the four operatingsubsidiaries, collectively, the “Companies”). The Companies (other than Glen Hes Corp.) are wholly owned by GlobalOperating** **LLC, a wholly owned subsidiary ofthe Partnership.  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.

 

The Partnership’s 1.73% general partner interest (reduced from 2%following the private placement of Class B units discussed in Note** **12) is held by Global** **GP** **LLC, the Partnership’s general partner (the “GeneralPartner”).  The General Partner, which isowned by affiliates of the Slifka family, manages the Partnership’s operationsand activities and employs its officers and substantially all of itspersonnel.  Affiliates of the GeneralPartner, including its directors and executive officers, own 61,824 commonunits and 5,642,424 subordinated units, representing a combined 42.9% limited partnerinterest.

 

**Basis of Presentation**

** **

***Interim Financial Statements***

** **

**Theaccompanying consolidated financial statements as of September 30, 2008 and December 31, 2007 andfor the three and nine months ended September 30, 2008 and 2007 reflect the accounts of the Partnership.  All intercompany balances and transactionshave been eliminated.**

** **

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States (“GAAP”) andreflect all adjustments (consisting only of normal recurring adjustments andthe change in estimate discussed below) which are, in the opinion ofmanagement, necessary for a fair presentation of the financial condition andoperating results for the interim periods. Due to changes in operating procedures and efficiencies, the Partnershipchanged its estimate of the inventory reserve account for the second quarterended June 30, 2008 which resulted in an increase in net income ofapproximately $2.5** **million,or $0.19** **per limitedpartner unit, for the nine months ended September 30, 2008.  The interim financial information, which hasbeen prepared pursuant to the rules and regulations of the Securities andExchange Commission (“SEC”), should be read in conjunction with theconsolidated financial statements for the year ended December 31, 2007 andnotes thereto contained in the Partnership’s Annual Report on Form 10-K.  The results of operations for the three andnine months ended September 30,2008 are not necessarily indicative of the results of operations that will berealized for the entire year ending December 31, 2008.

 

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

 

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

 

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 2.**       NetIncome Per Limited Partner Unit

** **

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

 

The following sets forth the net income allocation and per unit datausing this method for the periods presented (in thousands, except per unitdata):

 
| ** **                                                                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                          | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                          | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                |       |                             |       |                            |       |   |   |   |   |
| Net income                                                                          |       | $                                | 1,007      |                            | $          | 2,530 |   | $ | 8,372 |   | $ | 36,015 |   |
| Less:                                                                               |       |                             |       |                            |       |   |   |   |   |
| General Partner’s general partner interest(1)                                  |       | (17                              | )          | (44                             | )          | (144 | ) | (712 | ) |
| Non-cash reduction under EITF 98-05  allocated to limited partners(2)          |       | —                           |       | —                          |       | — |   | (16,400 | ) |
| Net income  available to limited partners                                           |       | 990                              |       | 2,486                           |       | 8,228 |   | 18,903 |   |
| Dilutive impact of theoretical distribution  of earnings                            |       | —                           |       | —                          |       | (239 | ) | (12,405 | ) |
| Net income available to limited partners  under EITF 03-06 and EITF 98-05 |       | $                                | 990        |                            | $          | 2,486 |   | $ | 7,989 |   | $ | 6,498 |   |

 

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 2.**       NetIncome Per Limited Partner Unit (continued)

 
| ** **                                                                                  | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                  | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                                  | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Per unit data:                                                                              |       |                             |       |                            |       |   |   |   |   |
| Net income available to limited partners                                                    |       | $                                | 0.08       |                            | $          | 0.19 |   | $ | 0.64 |   | $ | 1.76 |   |
| Dilutive impact of theoretical distribution  of earnings                                    |       | —                           |       | —                          |       | (0.02 | ) | (1.10 | ) |
| Net income available to limited partners  under EITF 03-06 and EITF 98-05(3) |       | $                                | 0.08       |                            | $          | 0.19 |   | $ | 0.62 |   | $ | 0.66 |   |
|                                                                                        |       |                             |       |                            |       |   |   |   |   |
| Weighted average limited partner units  outstanding                                         |       | 13,071                           |       | 13,071                          |       | 13,071 |   | 12,233 |   |

 

----

(1)      Calculation includes the effect of the privateplacement of Class B units on May 9, 2007 and, as a result, thegeneral partner interest was 1.73% for the three and nine months ended September 30,2008 and for the three months ended September 30, 2007.  For the nine months ended September 30,2007, the general partner interest was 1.99%, based on a weighted average.

 

(2)      In connection with the private placement of Class Bunits (see Note** **12), the Partnership was required to take intoaccount the effect of EITF 98-05, “Accounting for ConvertibleSecurities with Beneficial Conversion Features or Contingently AdjustableConversion Ratios” (“EITF 98-05”). As a result, a non-cash reduction in net income available to limitedpartners was recorded for the nine months ended September 30, 2007 becausethe fair value of the Partnership’s common units on May 9, 2007 (the dateon which the Class B units were issued) was greater than the purchaseprice of the Class B units, which was established at the time of theexecution of the Unit Purchase Agreement on March 14, 2007.  Although EITF 98-05 affected net incomeavailable to limited partners, it did not affect net income nor did it affecttotal partners’ equity.

 

(3)      Per unit data includes the weighted averageeffect of the private placement of Class B units which converted to commonunits for the nine months ended September 30, 2007.  Per unit data is calculated on a quarterlybasis; therefore, per unit data for the nine months ended September 30,2008 and 2007 equals the sums of the respective first three quarters.

 

On April 23, 2008, the board declared a quarterly cashdistribution of $0.4875 per unit for the period from January 1, 2008 throughMarch 31, 2008.  On July 21,2008, the board declared a quarterly cash distribution of $0.4875 per unitfor the period from April 1, 2008 through June 30, 2008.  On October 22, 2008, the board declareda quarterly cash distribution of $0.4875 per unit for the period from July 1,2008 through September 30, 2008. These declared cash distributions resulted in incentive distributions tothe General Partner, as the holder of the incentive distribution rights, asindicated above, and enabled the Partnership to reach its second targetdistribution with respect to such incentive distribution rights.  See Note 9, “Cash Distributions” forfurther information.

 

**Note 3.**       ComprehensiveIncome

 

The components of comprehensive income consisted of the following (inthousands):

 
| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                     | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net income                                     |       | $                                | 1,007      |                            | $          | 2,530 |   | $ | 8,372 |   | $ | 36,015 |   |
| Change in fair value of interest rate  collars |       | (251                             | )          | (773                            | )          | (367 | ) | (233 | ) |
| Change in pension liability                    |       | (756                             | )          | (143                            | )          | (1,537 | ) | (66 | ) |
| Unrealized gain on NYMEX shares                |       | —                           |       | —                          |       | — |   | (12,837 | ) |
| Total comprehensive income                     |       | $                                | —     |                            | $          | 1,614 |   | $ | 6,468 |   | $ | 22,879 |   |

 

7

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Table of Contents

 

**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 4.**       Inventories

 

The Partnership hedges substantially all of its inventory purchasesthrough futures contracts and swap agreements. Hedges are executed when inventory is purchased and are identified withthat specific inventory.  Changes in thefair value of these contracts, as well as the offsetting gain or loss on thehedged inventory item, are recognized currently in earnings.  All hedged inventory is valued using thelower of cost, as determined by specific identification, or market.  Prior to sale, hedges are removed fromspecific barrels of inventory, and the then unhedged inventory is sold andaccounted for on a first-in, first-out basis. Inventories consisted of the following (in thousands):

 
| ** **                                          | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-----------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                          | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Distillates: home heating oil, diesel and  kerosene |       | $                            | 244,192    |                        | $          | 344,984 |   |
| Residual oil                                        |       | 33,246                       |       | 50,054                      |       |
| Gasoline                                            |       | 59,594                       |       | 71,916                      |       |
| Blend stock                                         |       | 22,218                       |       | 17,305                      |       |
| Total                                               |       | $                            | 359,250    |                        | $          | 484,259 |   |

 

In addition to its own inventory, the Partnership has exchangeagreements with unrelated third-party suppliers, whereby it may draw inventoryfrom these other suppliers and suppliers may draw inventory from thePartnership.  Positive exchange balancesare accounted for as accounts receivable and amounted to $54.0 million and$36.8 million at September 30, 2008 and December 31, 2007,respectively.  Negative exchange balancesare accounted for as accounts payable and amounted to $52.0 million and$11.1 million at September 30, 2008 and December 31, 2007,respectively.  Exchange transactions arevalued using current quoted market prices.

 

**Note 5.**       DerivativeFinancial Instruments

** **

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

** **

***Fair ValueHedges***

** **

**The fairvalue of the Partnership’s derivatives is determined through the use ofindependent markets and is based upon the prevailing market prices of suchinstruments at the date of valuation. The Partnership enters into futures contracts for the receipt ordelivery of refined petroleum products in future periods.  The contracts are entered into in the normalcourse of business to reduce risk of loss of inventory on hand, which couldresult through fluctuations in market prices. Changes in the fair value of these contracts, as well as the offsettinggain or loss on the hedged inventory item, are recognized currently inearnings.  Ineffectiveness related tothese hedging activities was immaterial at September 30, 2008.**

** **

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

 

8

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Table of Contents

 

**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 5.**       DerivativeFinancial Instruments (continued)

 

The composition and fair value of derivative instruments relating toforward fixed price purchase and sale contracts on the Partnership’sconsolidated balance sheet consisted of the following (in thousands):

 
| ** **                    | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                          |       |                         |       |                        |       |
| Futures contracts             |       | $                            | 42,401     |                        | $          | (37,355 | ) |
| Swaps, options and other, net |       | 3,017                        |       | (3,795                      | )          |
| Total                         |       | $                            | 45,518     |                        | $          | (41,150 | ) |

 

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

 

The Partnership formally documents all relationships between hedginginstruments and hedged items after its risk management objectives and strategyfor undertaking 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.

 

The Partnership has a daily margin requirement with its broker based onthe prior day’s market results on open futures contracts.  The required brokerage margin balance was$5.4 million and $12.5 million at September 30, 2008 and December 31,2007, respectively.

 

The Partnership is exposed to credit loss in the event ofnonperformance by counterparties of futures contracts, options and swapagreements, but the Partnership has no current reason to expect any materialnonperformance by any of these counterparties. Futures contracts, the primary derivative instrument utilized by thePartnership, are traded on regulated exchanges, greatly reducing potentialcredit risks.  Exposure on swap andcertain option agreements is limited to the amount of the recorded fair valueas of the balance sheet dates.  The Partnershiputilizes primarily one clearing broker, a major financial institution, for all New York Mercantile Exchange****(“NYMEX”) derivative transactionsand the right of offset exists. Accordingly, the fair value of all derivative instruments is presented ona net basis on the consolidated balance sheets.

 

***Interest Rate Hedges***

 

The Partnershipexecuted two zero premium interest rate collars with major financialinstitutions.  Each collar is designatedas a cash flow hedge and accounted for under the provisions of SFAS No. 133.  The first collar, which became effective on May 14,2007 and expires on May 14, 2011, is used to hedge the variability ininterest payments due to changes in the three-month LIBOR rate with respect to$100.0 millionof long-term three-month LIBOR-based borrowings.  Under the first collar, the Partnershipcapped its exposure at a maximum three-month LIBOR rate of 5.75%.  In addition, the Partnership established aminimum floor rate of 3.75%.  As of September 30,2008, the three-month LIBOR rate of 2.8% was lower than the floor rate.  As a result, the Partnership will remit tothe respective financial institution the difference between

 

9

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Table of Contents

 

**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 5.**       DerivativeFinancial Instruments (continued)

** **

the floor rate and the current rate which amounted to approximately$126,000 and was recorded in accrued expenses and other current liabilities onthe accompanying balance sheet.  As of September 30, 2008, the fair value of thefirst collar was a liability of approximately $1.7 million and was recorded inboth other long-term liabilities and accumulated other comprehensiveincome.  There was no ineffectivenessrelated to the first collar as of September 30, 2008.

 

On September 29,2008, the Partnership executed its second zero premium interest ratecollar.  The second collar, which becameeffective on October 2, 2008 and expires on October 2,2013, is usedto hedge the variability in cash flows in monthly interest payments made on thePartnership’s $100.0 millionone-month LIBOR-based borrowings (and subsequent refinancings thereof) due tochanges in the one-month LIBOR rate. Under the second collar, the Partnership capped its exposure at amaximum one-month LIBOR rate of 5.50%. In addition, the Partnership established a minimum floor rate of2.70%.  As of September 30, 2008,the fair value of the second collar was an asset of approximately $20,000 andwas recorded in both other long-term assets and accumulated other comprehensiveincome in the accompanying consolidated balance sheet.  Hedge effectiveness was assessed at inceptionand will be assessed quarterly, prospectively and retrospectively, using theregression analysis.  The changes in the fair value of the secondcollar are expected to be highly effective in offsetting the changes ininterest rate payments attributable to fluctuations in the one-month LIBOR rateabove and below the second collar’s strike rates.  Ineffectivenessrelated to the second collar was immaterial at September 30, 2008.

 

**Note 6.**       Debt

** **

The Partnership has a senior secured credit agreement (the “CreditAgreement”) with total available commitments of $750.0** **million.  There are three facilities under the CreditAgreement:

 

·      a working capital revolving creditfacility to be used for working capital purposes and letters of credit in theprincipal amount equal to the lesser of the Partnership’s borrowing base and$650.0 million, of which two $50.0 million seasonal overline facilitiesare available each year only during the period between September 1 and June 30.  On July 21, 2008, the Credit Agreementwas amended to reinstate the seasonal overline period from July 21, 2008through August 31, 2008;

 

·      an $85.0 million acquisitionfacility to be used for funding acquisitions similar to the Partnership’sbusiness line that have a purchase price of $25.0 million or less or$35.0 million or less in the aggregate in any 12-month period; and

 

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

 

In addition, the Credit Agreement has an accordion feature whereby thePartnership may request on the same terms and conditions of its then existingCredit Agreement, provided no Event of Default (as defined in the CreditAgreement) then exists, 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 working capitalrevolving credit facility by up to another $200.0 million, for a totalworking capital revolving credit facility of up to $850.0 million.  Any such request for an increase by thePartnership must be in a minimum amount of $5.0 million, and no more thanthree such requests may be made for each facility.  The Partnership, however, cannot provideassurance that its lending group will agree to fund any request by thePartnership for additional amounts in excess of the total available commitmentsof $750.0** **million.

 

During the period from January 1, 2008 through July 20, 2008,borrowings under the Partnership’s working capital revolving credit,acquisition and revolving credit facilities bore interest at the Partnership’soption at (1) the Eurodollar rate, plus 1%, 11⁄2% and 11⁄2%, respectively, (2) thecost of funds rate, plus 1%, 13⁄4% and 11⁄2%, respectively, or (3) the bank’sbase rate.

 

10

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Table of Contents

 

**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 6.**       Debt(continued)

 

CommencingJuly 21, 2008, borrowingsunder the working capital revolving credit facility bear interest at (1) theEurodollar rate plus 1.75% to 2.25%, (2) the cost of funds rate plus 1.75%to 2.25%, or (3) the base rate plus 0.75% to 1.25%, each depending on thepricing level provided in the Credit Agreement, as amended, which in turndepends upon the Combined Interest Coverage Ratio (as such term is defined inthe Credit Agreement).  Borrowings under the acquisition and revolvingcredit facilities bear interest at (1) the Eurodollar rate plus 2.25% to2.75%, (2) the cost of funds rate plus 1.75% to 2.25%, or (3) thebase rate plus 0.75% to 1.25%, each depending on the pricing level provided inthe Credit Agreement, as amended, which in turn depends upon the CombinedInterest Coverage Ratio.  Theaverage interest rates for the three and nine months ended September 30,2008 were approximately 4.5% and 4.3%, respectively.  The average interest rate for each of thethree and nine months ended September 30, 2007 was 6.4%.

 

In addition, thePartnership executed two zero premium interest rate collars with majorfinancial institutions.  The firstcollar, which became effective on May 14, 2007, is used to hedge thevariability in interest payments due to changes in the three-month LIBOR ratewith respect to $100.0 million of long-term three-month LIBOR-basedborrowings.  The second collar, which wasexecuted on September 29, 2008 and became effective on October 2,2008, is used to hedge the variability in cash flows in monthly interestpayments 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 (see Note 5 for further discussion onthe interest rate collars).

 

The Partnership incurs a letter of credit fee of 2% per annum for eachletter of credit issued.  In addition,the Partnership incurs a commitment fee on the unused portion of the threefacilities under the Credit Agreement (including the unused portion of eitherof the seasonal overline facilities exercised by the Partnership) equal to 0.3%to 0.375% per annum, depending on the pricing level and the Combined InterestCoverage Ratio provided in the Credit Agreement.  The Partnership also incurs a facility fee of0.1% per annum on any unexercised seasonal overline facility during the periodbetween September 1 and June 30 and a seasonal overline fee of$30,000 each time the Partnership elects to exercise either of the seasonaloverline facilities.

 

The Credit Agreement will mature on April 22, 2011.  The Partnership classifies a portion of itsworking capital revolving credit facility as a long-term liability because thePartnership has a multi-year, long-term commitment from its bank group.  The long-term portion of the working capitalrevolving credit facility was $146.7 million and $119.0 million at September 30,2008 and December 31, 2007, 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 $250.6 million and$304.8 million at September 30, 2008 and December 31, 2007,respectively, representing the amounts the Partnership expects to pay downduring the course of the year.

 

As of September 30, 2008, the Partnership had total borrowingsoutstanding under the Credit Agreement of $468.5 million, including$71.2 million outstanding on the acquisition facility, and outstandingletters of credit of $69.7 million. The total remaining availability for borrowings and letters of credit atSeptember 30, 2008 was $211.8 million.

 

The Credit Agreement is secured by substantially all of the assets ofthe Partnership 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 the CreditAgreement) would occur, and limitations on the Partnership’s ability to grantliens, make certain loans or investments, incur additional indebtedness orguarantee other indebtedness, make any material change to the nature of thePartnership’s business or undergo a fundamental change, make any materialdispositions, acquire another company, enter into a merger, consolidation, saleleaseback transaction or purchase of assets, or make capital expenditures inexcess of specified levels.

 

11

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Table of Contents

 

**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 6.**       Debt(continued)

 

The Credit Agreement imposes covenants that require the Partnership tomaintain certain minimum working capital amounts, capital expenditure limits, aminimum EBITDA ratio, a minimum interest coverage ratio and a maximum leverageratio.  On July 18, 2008, the CreditAgreement was amended whereby the Minimum EBITDA (as defined in the CreditAgreement) as at the end of the June 30, 2008 fiscal quarter and eachfiscal quarter ending thereafter is not less than $30.0 million for theperiod of four consecutive fiscal quarters most recently ended.  In addition, the minimum combined interestcoverage ratio was reduced to 1.75:1.00 for the quarter ended September 30,2008.  The Partnership was in compliancewith all covenants at September 30, 2008.

 

The Credit Agreement also requires that in each calendar year, theoutstanding amount under the working capital revolving credit facility must beequal to or less than $263.0 million for a period of ten consecutivecalendar days.  On September 26,2008, the Credit Agreement was amended which included, among other things,acknowledgment of compliance of this provision for the year ended December 31,2008.

 

The Credit Agreement limits distributions by the Partnership to itsunitholders to the amount of the Partnership’s available cash and permits borrowingsto fund such 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.

 

The lending 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/n/a TD BankNorth, N.A.); Wells Fargo Bank, N.A.; Wachovia Bank, NationalAssociation; and Calyon New York Branch.

 

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

** **

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

 
| ** **                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                     | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                     | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|                           |       |                             |       |                            |       |   |   |   |   |
| Service cost                   |       | $                                | 265        |                            | $          | 204 |   | $ | 796 |   | $ | 611 |   |
| Interest cost                  |       | 200                              |       | 163                             |       | 600 |   | 490 |   |
| Expected return on plan assets |       | (166                             | )          | (158                            | )          | (496 | ) | (474 | ) |
| Recognized net actuarial loss  |       | 1                                |       | —                          |       | 1 |   | — |   |
| Net periodic benefit cost      |       | $                                | 300        |                            | $          | 209 |   | $ | 901 |   | $ | 627 |   |

 

**Note 8.**       RelatedParty Transactions

 

The Partnership is a party to a Second Amended and Restated TerminalStorage Rental and Throughput Agreement with Global Petroleum Corp. (“GPC”), anaffiliate of the Partnership, which extends through December 2013 withannual renewal options.  The agreement isaccounted for as an operating lease.  Theexpenses under this agreement totaled approximately $2.2** **millionand $2.1** **million for the three monthsended September 30,** **2008 and2007, respectively, and $6.4** **millionand $6.2** **million for the nine months endedSeptember 30,** **2008 and2007, respectively.

 

12

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**Note 8.**       RelatedParty Transactions (continued)

 

Pursuant to an Amended and Restated Services Agreement with GPC, GPCprovides certain terminal operating management services to the Partnership anduses certain administrative, accounting and information processing services ofthe Partnership.  The expenses from theseservices totaled approximately $21,500 and $19,000 for the three months ended September 30,2008 and 2007, respectively, and $64,500 and $55,000 for the nine months ended September 30,2008 and 2007, respectively.  Thesecharges were recorded in selling, general and administrative expenses in theaccompanying consolidated statements of income. The agreement is for an indefinite term, and either party may terminateits receipt of some or all of the services thereunder upon 180 days’ notice atany time after January 1, 2009.

 

Pursuant to the Partnership’s Amended and Restated Services Agreementwith Alliance Energy LLC (formerly known as Alliance Energy Corp.) (“Alliance”),the Partnership also provides certain administrative, accounting andinformation processing services, and the use of certain facilities, toAlliance, an affiliate of the Partnership that is 95% owned by members of theSlifka family.  The income from theseservices was approximately $216,500 and $132,000 for the three months ended September 30,2008 and 2007, respectively, and $649,500 and $396,000 for the nine monthsended September 30,** **2008 and2007, respectively.  These fees wererecorded as an offset to selling, general and administrative expenses in theaccompanying consolidated statements of income. The agreement extends through January 1, 2009.

 

The Partnership sells refined petroleum products to Alliance atprevailing market prices at the time of delivery.  Sales to Alliance were approximately$5.7 million and $9.5 million for the three months ended September 30,2008 and 2007, respectively, and $25.1 million and $28.5 million forthe nine months ended September 30,** **2008 and2007, respectively.

 

The General Partner employs substantially all of the Partnership’semployees and charges the Partnership for their services.  The expenses for the three months ended September 30,2008 and 2007, including payroll, payroll taxes and bonus accruals, were$6.5 million and $6.3 million, respectively, and $20.9 millionfor each of the nine months ended September 30,** **2008and 2007.  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.

 

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

 
| ** **                               | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                     |       |                         |       |                        |       |
| Receivables from Alliance                |       | $                            | 2,124      |                        | $          | 3,926 |   |
| Receivables from GPC                     |       | 305                          |       | 64                          |       |
| Receivables from the General Partner (1) |       | 339                          |       | 318                         |       |
| Total                                    |       | $                            | 2,768      |                        | $          | 4,308 |   |

 

----

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

 

**Note 9.**       CashDistributions

 

The Partnership intends to consider regular cash distributions tounitholders on a quarterly basis, although there is no assurance as to thefuture cash distributions since they are dependent upon future cash flows,capital requirements, 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.

 

13

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 9.**       CashDistributions (continued)

 

Within 45 days after the end of each quarter, the Partnership willdistribute all of its available cash (as defined in its partnership agreement)to unitholders of record on the applicable record date.  The amount of available cash is all cash onhand at the end of the quarter; plus all cash on hand on the date ofdetermination of available cash for the quarter resulting from working capitalborrowings made after the end of the quarter; less the amount of cash reservesestablished by the General Partner to provide for the proper conduct of thePartnership’s business, to comply with applicable law, any of the Partnership’sdebt instruments, or other agreements or to provide funds for distributions tounitholders and to the General Partner for any one or more of the next fourquarters.  Working capital borrowings aregenerally borrowings that are made under the Credit Agreement and in all casesare used solely for working capital purposes or to pay distributions topartners.

 

The Partnership will make distributions of available cash fromoperating surplus for any quarter during the subordination period as defined inits partnership agreement in the following manner: firstly, 98.27% to thecommon unitholders, pro rata, and 1.73% to the General Partner, until thePartnership distributes for each outstanding common unit an amount equal to theminimum quarterly distribution for that quarter; secondly, 98.27% to the commonunitholders, pro rata, and 1.73% to the General Partner, until the Partnershipdistributes for each outstanding common unit an amount equal to any arrearagesin payment of the minimum quarterly distribution on the common units for anyprior quarters during the subordination period; thirdly, 98.27% to thesubordinated unitholders, pro rata, and 1.73% to the General Partner, until thePartnership distributes for each subordinated unit an amount equal to theminimum quarterly distribution for that quarter; and thereafter, cash in excessof the minimum quarterly distributions is distributed to the unitholders andthe General Partner based on the percentages as provided below.

 

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

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

 

The Partnership paid the following cash distribution during 2008 (inthousands, except per unit data):

 
| **Cash  Distribution  Payment Date** | ** ** | **Per Unit  Cash  Distribution** | ** ** | **Common  Units** | ** ** | **Subordinated  Units** | ** ** | **General  Partner** | ** ** | **General  Partner  Incentive  Distribution** | ** ** | **Total Cash  Distribution** | ** ** |
|-------------------------------------------|------------|---------------------------------------|------------|-------------------|------------|-------------------------|------------|----------------------|------------|-----------------------------------------------|------------|-----------------------------------|------------|
| 02/14/08(1)                               |       | $                                     | 0.4875     |              | $          | 3,621                   |       | $                    | 2,751      |                                          | $          | 112                               |       | $ | 50 |   | $ | 6,534 |   |
| 05/14/08(2)                               |       | $                                     | 0.4875     |              | $          | 3,621                   |       | $                    | 2,751      |                                          | $          | 112                               |       | $ | 50 |   | $ | 6,534 |   |
| 08/14/08(3)                               |       | $                                     | 0.4875     |              | $          | 3,621                   |       | $                    | 2,751      |                                          | $          | 112                               |       | $ | 50 |   | $ | 6,534 |   |

 

----

(1)   This distribution of $0.4875 per unit resulted in the Partnershipreaching its second target distribution for the fourth quarter of 2007.  As a result, the General Partner receivedthis incentive distribution.

(2)   This distribution of $0.4875 per unit resulted in the Partnershipreaching its second target distribution for the first quarter of 2008.  As a result, the General Partner receivedthis incentive distribution.

(3)   This distribution of $0.4875 per unit resulted in the Partnershipreaching its second target distribution for the second quarter of 2008.  As a result, the General Partner receivedthis incentive distribution.

 

14

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Table of Contents

 

**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 9.**       CashDistributions (continued)

** **

In addition, on October 22, 2008, the board of directors of theGeneral Partner declared a quarterly cash distribution of $0.4875 per unit forthe period from July 1, 2008 through September 30, 2008 ($1.95 perunit on an annualized basis).  On November 14,2008, the Partnership will pay this cash distribution to its common andsubordinated unitholders of record as of the close of business November 5,2008.  This distribution will result in thePartnership reaching its second target distribution for the quarter ended September 30,2008.

 

**Note 10.**     SegmentReporting

** **

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

 

In the Wholesale segment, the Partnership sells gasoline, home heatingoil, diesel, kerosene and residual oil to unbranded retail gasoline stationsand other 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.

 

The Commercial segment includes (1) sales and deliveries ofunbranded gasoline, home heating oil, diesel, kerosene, residual oil and smallamounts of natural gas to customers in the public sector and to largecommercial and industrial customers, either through a competitive biddingprocess or through contracts of various terms, and (2) sales of customblended distillates and residual oil delivered by barges or from a terminaldock.  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.

 

The Partnership evaluates segment performance based on net product marginsbefore allocations 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 the componentsof operating costs and expenses between the reportable segments.  Additionally, due to the commingled natureand uses of the Partnership’s assets, it is not reasonably possible for thePartnership to allocate assets between the two segments.  There were no intersegment sales for any ofthe periods presented below.

 

15

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Table of Contents

 

**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 10.**     SegmentReporting (continued)

 

Summarized financial information for the Partnership’s reportablesegments is presented in the table below (in thousands):

 
| ** **                                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                 | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                 | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Wholesale Segment:**                     |       |                             |       |                            |       |   |   |   |   |
| Sales                                      |       | $                                | 2,169,936  |                            | $          | 1,539,938 |   | $ | 6,959,244 |   | $ | 4,284,719 |   |
| Net product margin (1)                     |       |                             |       |                            |       |   |   |   |   |
| Distillates                                |       | $                                | 12,001     |                            | $          | 18,614 |   | $ | 44,422 |   | $ | 57,910 |   |
| Gasoline                                   |       | 13,554                           |       | 2,231                           |       | 32,522 |   | 6,165 |   |
| Residual oil                               |       | 412                              |       | 3,678                           |       | 7,542 |   | 19,050 |   |
| Total                                      |       | $                                | 25,967     |                            | $          | 24,523 |   | $ | 84,486 |   | $ | 83,125 |   |
| **Commercial Segment:**                    |       |                             |       |                            |       |   |   |   |   |
| Sales                                      |       | $                                | 102,143    |                            | $          | 58,523 |   | $ | 331,536 |   | $ | 271,008 |   |
| Net product margin (1)                     |       | $                                | 2,460      |                            | $          | 1,474 |   | $ | 7,389 |   | $ | 8,708 |   |
| **Combined sales and net product margin:** |       |                             |       |                            |       |   |   |   |   |
| Sales                                      |       | $                                | 2,272,079  |                            | $          | 1,598,461 |   | $ | 7,290,780 |   | $ | 4,555,727 |   |
| Net product margin (1)                     |       | $                                | 28,427     |                            | $          | 25,997 |   | $ | 91,875 |   | $ | 91,833 |   |
| Depreciation allocated to cost of sales    |       | 2,499                            |       | 2,050                           |       | 7,658 |   | 4,012 |   |
| **Combined gross profit**                  |       | $                                | 25,928     |                            | $          | 23,947 |   | $ | 84,217 |   | $ | 87,821 |   |

 

----

(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.

 

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

 
| ** **                                                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                              | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                              | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                    |       |                             |       |                            |       |   |   |   |   |
| **Combined gross profit**                                               |       | $                                | 25,928     |                            | $          | 23,947 |   | $ | 84,217 |   | $ | 87,821 |   |
| **Operating costs and expenses not allocated  to reportable segments:** |       |                             |       |                            |       |   |   |   |   |
| Selling, general and administrative  expenses                           |       | 10,457                           |       | 9,476                           |       | 31,712 |   | 34,340 |   |
| Operating expenses                                                      |       | 8,429                            |       | 6,939                           |       | 26,225 |   | 19,139 |   |
| Amortization expenses                                                   |       | 738                              |       | 388                             |       | 2,199 |   | 1,104 |   |
| **Total operating costs and expenses**                                  |       | 19,624                           |       | 16,803                          |       | 60,136 |   | 54,583 |   |
| Operating income                                                        |       | 6,304                            |       | 7,144                           |       | 24,081 |   | 33,238 |   |
| Interest expense                                                        |       | (5,297                           | )          | (4,614                          | )          | (15,414 | ) | (10,453 | ) |
| Gain on sale of investment                                              |       | —                           |       | —                          |       | — |   | 14,118 |   |
| Income tax expense                                                      |       | —                           |       | —                          |       | (295 | ) | (888 | ) |
| **Net income**                                                          |       | $                                | 1,007      |                            | $          | 2,530 |   | $ | 8,372 |   | $ | 36,015 |   |

 

There were no foreign sales for the three and nine months ended September 30,2008 and 2007.  The Partnership has noforeign assets.

 

16

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 11.**     Investmentin Equity Securities

** **

The Partnership held an investment in NYMEX Holdings, Inc. whichwas accounted for under the provisions of SFAS No. 115, “Accounting forCertain Investments in Debt and Equity Securities.”  On March 6, 2007, the Partnership soldits investment in NYMEX Holdings, Inc. along with its NYMEX seats forapproximately $15.3 million and realized a gain of approximately $14.1 millionin the consolidated statement of income for the nine months ended September 30,2007.

 

**Note 12.**     Unitholders’Equity

** **

***Private Placement***

 

OnMarch 13, 2007, the Partnership entered into a Class B Unit PurchaseAgreement (the “Unit Purchase Agreement”) with Kayne Anderson MLP InvestmentCompany and funds managed by Tortoise Capital Advisors, LLC and Fiduciary Asset Management, LLC (the “Purchasers”) to sell $50.0 million of Class B units representinglimited partner interests of the Partnership in a private placement (the “PrivatePlacement”).  The Partnership issued andsold 1,785,715 Class B units to the Purchasers pursuant to the UnitPurchase Agreement on May 9, 2007. The Class B units were convertible into common units on aone-for-one basis.

 

In connection with the issuance ofthe Class B units, the Partnership agreed to a discount in the purchaseprice of approximately $0.8 million, which is the approximate amount of the productof (i) the 1,785,715 Class B units, and (ii) $0.4650, the amountof the Partnership’s first quarter 2007 per unit distribution that was paid tothe common and subordinated unitholders on May 15, 2007.  Such discount was paid by the Partnership tothe Purchasers of the Class B units substantially contemporaneously withthe payment of the Partnership’s first quarter 2007 distribution.  After giving effect to such reduction, the purchase price for the Class Bunits was approximately $49.2 million, or $27.53 per unit.  The net purchase price of the Class Bunits, after the reduction and related fees, was $49.1 million. The net proceeds of the Class B units were used to partiallyfinance the acquisition of the Albany and Newburgh, New York and Burlington,Vermont terminals in May 2007.  On May 22,2007, the Class B units converted into common units on one-for-one basis.

 

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

 

OnMay 22, 2007, the Class B units converted into common units onone-for-one basis.

 

Inconnection with the private placement, the Partnership was required to takeinto account the effect of EITF 98-05.  Asa result, a non-cash reduction in net income available to limited partners wasrecorded for the nine months ended September 30, 2007.  Thisnon-cash reduction was required to be recorded pursuant to EITF 98-05 because the fair value of the Partnership’scommon units on May 9, 2007 (the date on which the Class B units wereissued) was greater than the purchase price of the Class B units, which wasestablished at the time of the execution of the Unit Purchase Agreement on March 14,2007.  The non-cash reduction was approximately $16.4 million computed as theproduct of (i) the 1,785,715 Class B units, and (ii) the difference between the fairvalue of a common unit on the date of issuance ($36.71) and the conversion rateafter the price reduction ($27.53).  Thenon-cash reduction resulted in the Partnership recognizing a $16.4 million decrease in commonunit equity and a corresponding increase in Class B unit equity.  Additionally, the Partnership recordedaccretion of $16.4 millionas a non-cash distribution to common unitholders for the nine months ended September 30,2007.

 

Although EITF 98-05 affected net income available to limited partners for the nine months ended September 30,2007, it did not affect netincome, nor did it affect total partners’ equity.

 

17

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 13.**     EnvironmentalLiabilities

** **

The Partnership currently owns or leases properties where refinedpetroleum products are being or have been handled.  These properties and the refined petroleumproducts handled thereon may be subject to federal and state environmental lawsand regulations.  Under such laws andregulations, the Partnership could be required to remove or remediate containerizedhazardous liquids or associated generated wastes (including wastes disposed ofor abandoned 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.

 

The Partnership maintains insurance ofvarious types with varying levels of coverage that it considers adequate underthe circumstances to cover its operations and properties.  The insurance policies are subject todeductibles that the Partnership considers reasonable and not excessive.  In addition, the Partnership has entered intoindemnification agreements with various sellers in conjunction with several ofits acquisitions.  Allocation ofenvironmental liability is an issue negotiated in connection with each of thePartnership’s acquisition transactions. In each case, the Partnership makes an assessment of potentialenvironmental liability exposure based on available information.  Based on that assessment and relevanteconomic and risk factors, the Partnership determines whether to, and theextent to which it will, assume liability for existing environmentalconditions.

 

In connection with the November 2007 acquisition of ExxonMobil OilCorporation’s (“ExxonMobil”) Glenwood Landing and Inwood, New York terminals,the Partnership assumed certain environmental liabilities, including theremediation obligations under remedial action plans submitted by ExxonMobil toand approved by the New York Department of Environmental Conservation (“NYDEC”)with respect to both terminals.  As aresult, the Partnership recorded, on an undiscounted basis, total environmentalliabilities of approximately $1.2 million, of which approximately$0.3 million was paid by the Partnership for the three and nine monthsended September 30, 2008.  Theremaining liability of $0.9 million was recorded as a current liability of$0.4 million and a long-term liability of $0.5 million on theaccompanying consolidated balance sheet at September 30, 2008.  The remedial action plans submitted byExxonMobil have been implemented by Global Companies LLC.  The Partnership does not believe thatcompliance with the terms thereof will result in material costs in excess ofthe environmental reserve or have a material impact on its operations.

 

In connection with the May 2007 acquisition of ExxonMobil’s Albanyand Newburgh, New York and Burlington, Vermont terminals, the Partnershipassumed certain environmental liabilities, including the remediationobligations under a proposed remedial action plan submitted by ExxonMobil toNYDEC with respect to the Albany, New York terminal.  As a result, the Partnership recorded, on anundiscounted basis, total environmental liabilities of approximately $8.0** **million, of which approximately $0.1 million waspaid by the Partnership for the three and nine months ended September 30,2008.  The remaining liability of$7.9 million was recorded as a current liability of $0.5 million anda long-term liability of $7.4 million on the accompanying consolidatedbalance sheet at September 30, 2008. NYDEC has reviewed the proposed remedial action plan submitted byExxonMobil and provided comments to Global Companies LLC regarding theplan.  Global Companies LLC prepareda response to NYDEC’s comments.  GlobalCompanies LLC has exchanged correspondence with NYDEC seekingclarification of components of the proposed remedial action plan.  Subject to NYDEC’s approval of the proposedremedial action plan, the Partnership does not believe that compliance with theterms thereof will result in material costs in excess of the environmentalreserve or have a material impact on its operations.

 

18

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 13.**     EnvironmentalLiabilities (continued)

** **

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

 

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

 

**Note 14.**     Long-TermIncentive Plan

** **

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

 

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

 

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

 

Forthe three months ended September 30, 2008 and 2007, the Partnership recorded compensation expense ofapproximately $0.2 million and $0.1 million, respectively, and for the nine months ended September 30, 2008 and 2007, the Partnership recordedcompensation expense of approximately $0.6 million and $0.1 million, respectively, which is included inselling, general and administrative expenses in the accompanying consolidatedstatements of income.  The totalcompensation cost related to the non-vested awards not yet recognized at September 30, 2008 is approximately $1.0 million andis expected to be recognized ratably over the remaining Requisite ServicePeriod.

 

19

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**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 15.**     FairValue Measurements

 

OnJanuary 1, 2008, the Partnership partially adopted SFAS No. 157, “FairValue Measurements” (“SFAS No. 157”) for its financial assets andfinancial liabilities.  The adoption ofSFAS No. 157 did not have a material impact on the Partnership’s fairvalue measurements.  SFAS No. 157defines fair value as the price that would be received to sell an asset or paidto transfer a liability in the principal or most advantageous market for theasset or liability in an orderly transaction between market participants at themeasurement date.

 

SFASNo. 157 establishes a fair value hierarchy, which prioritizes the inputsused in measuring 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 September 30, 2008 (in thousands):

 
| ** **                                    | ** ** | **Fair Value**    | ** ** | ** **                                       | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------|------------|------------------------|------------|--------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                    | ** ** | **September 30,** | ** ** | **Fair Value Measurements Using** | ** ** |
| ** **                                    | ** ** | **2008**               | ** ** | **Level 1**                                 | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Assets:**                                   |       |                   |       |                                             |       |             |       |             |       |
| NYMEX contracts                               |       | $                      | 899        |                                             | $          | 899              |       | $                | —     |   | $ | — |   |
| Hedged inventories                            |       | 323,870                |       | —                                           |       | 323,870          |       | —           |       |
| Fair value of forward fixed price contracts   |       | 48,305                 |       | —                                           |       | 48,305           |       | —           |       |
| Swap agreements and options                   |       | 2,387                  |       | 1,327                                            |       | 1,060            |       | —           |       |
| Total assets                                  |       | $                      | 375,461    |                                             | $          | 2,226            |       | $                | 373,235    |   | $ | — |   |
|                                          |       |                   |       |                                             |       |             |       |             |       |
| **Liabilities:**                              |       |                   |       |                                             |       |             |       |             |       |
| Obligations on forward fixed price  contracts |       | $                      | 2,887      |                                             | $          | —           |       | $                | 2,887      |   | $ | — |   |
| Swap agreements                               |       | 718                    |       | —                                           |       | 718              |       | —           |       |
| Interest rate collars                         |       | 1,696                  |       | —                                           |       | 1,696            |       | —           |       |
| Total liabilities                             |       | $                      | 5,301      |                                             | $          | —           |       | $                | 5,301      |   | $ | — |   |

 

**Note 16.**     LegalProceedings

 

***General***

 

Although the Partnership may, from time to time, be involved inlitigation and claims arising out of its operations in the normal course of business,the Partnership does not believe that it is a party to any litigation that willhave a material adverse impact on its financial condition or results ofoperations.  Except as described below,the Partnership is not aware of any significant legal or governmentalproceedings against it, or contemplated to be brought against it.  The Partnership maintains insurance policieswith insurers in amounts and with coverage and deductibles as its generalpartner believes are reasonable and prudent. However, the Partnership can provide no assurance that this insurancewill be adequate to protect it from all material expenses related to potentialfuture claims or that these levels of insurance will be available in the futureat economically acceptable prices.

 

20

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**Table of Contents**

** **

**GLOBAL PARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 16.**               LegalProceedings (continued)

** **

***Environmental***

 

As previously disclosed, Global Companies LLC, in addition to severalaffiliates, has been named as one of over 50 defendants in two lawsuitsalleging methyl tertiary-butyl ether (“MTBE”) contamination of groundwater inMassachusetts.  MTBE is an oxygenate thathas been used extensively to reduce motor vehicle tailpipe emissions.  In the cases of Town of Duxbury, et al. v.Amerada Hess Corp., et al., filed December 31, 2003, and City of Lowell v.Amerada Hess Corp., et al., filed December 30, 2004, plaintiffs allegethat manufacturers, refiners and others involved in the distribution ofgasoline containing MTBE are liable for the costs of investigating possibleMTBE groundwater contamination, treating such contaminated groundwater wherefound, and related relief including treble damages and injunctive relief.  The plaintiffs in these cases generally claimto be public water providers or municipal or other government authorities.  These cases have been consolidated inmulti-district litigation with over 60 other MTBE cases in federal court in theSouthern District of New York.  ThePartnership entered into an agreement, in principle, to settle thesecases.  The Partnership does not believethat settlement of these cases will have a material impact on its operations.

 

***Other***

 

On September 17, 2008, the Office of the Attorney General of theState of Connecticut issued Interrogatories and Subpoena Duces Tecum (the “Subpoena”)in connection with an investigation of gasoline wholesalers in Connecticut inthe wake of Hurricane Ike.  ThePartnership responded to the Subpoena on behalf of Global Companies LLC.  According to the press release issued by theAttorney General’s office, similar subpoenas were also issued to other gasolinewholesalers in Connecticut.  ThePartnership has taken steps to comply with the demand.  While the Partnership cannot predict theoutcome of the investigation, it does not expect that the outcome will have amaterial adverse effect on its operations.

 

**Note 17.**               RecentAccounting Pronouncements

** **

In September 2006, the Financial Accounting Standards Board(“FASB”) issued SFAS No. 157. This statement defines fair value, establishes guidelines for measuringfair value and requires additional disclosures regarding fair valuemeasurements.  SFAS No. 157 applies only to fair valuemeasurements currently required or permitted by other accounting standards andis expected to increase the consistency of those measurements.  In February 2008, the FASBdeferred the effective date of SFAS No. 157 for all non-financial assetsand non-financial liabilities, except those that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually) until January 1,2009.  The Partnership is in the processof evaluating the impact of SFAS No. 157 on its non-recurring fair valuemeasurements.  The Partnership adopted SFASNo. 157 on January 1, 2008 for its financial assets and liabilities measured at fair value on a recurringbasis.  The partial adoption of SFAS No. 157for financial assets and liabilities did not have a material impact on thePartnership’s consolidated financial statements.  See Note 15.

 

In February2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities” (“SFAS No. 159”) which provides entities with anoption to measure many financial instruments and certain other items at fairvalue that are not currently measured at fair value.  The election to use the fair value option isavailable when an entity first recognizes a financial asset or financialliability or upon entering into a firm commitment.  Subsequent changes in fair value must berecorded in earnings.  This statementalso establishes presentation and disclosure requirements designed tofacilitate comparisons between entities that choose different measurementattributes for similar types of assets and liabilities.  The Partnership adopted SFAS No. 159 onJanuary 1, 2008 and elected not to use the fair value option for its existingfinancial assets and liabilities and, therefore, the adoption of SFAS No. 159did not have an impact on the Partnership’s consolidated financial statements.

 

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**GLOBAL PARTNERSLP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 17.**               RecentAccounting Pronouncements (continued)

** **

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

 

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

 

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

 

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3,“Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amendsthe factors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).  The objective of FSP FAS 142-3 is to improve the consistency between theuseful life of a recognized intangible asset under SFAS 142 and the periodof expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and otherGAAP.  FSP FAS 142-3 is effective for financial statements issuedfor fiscal years beginning after December 15, 2008 and interim periodswithin those years.  The Partnership is in the process ofevaluating the impact of FSP FAS 142-3 on its consolidated financial statements.

 

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally AcceptedAccounting Principles” (“SFAS No. 162”).  SFAS No. 162 identifies the sources ofaccounting principles and the framework for selecting the principles used inthe preparation of financial statements of nongovernmental entities that arepresented in conformity with GAAP in the United States.  SFAS No. 162 is effective November 15,2008.  The Partnership expects theadoption of SFAS No. 162 will not have an impact on its consolidatedfinancial statements.

 

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**GLOBALPARTNERS LP**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 17.**               RecentAccounting Pronouncements (continued)

** **

InJune 2008, the FASB issued FASB Staff Position EITF 03-6-1, “DeterminingWhether Instruments Granted in Share-Based Payment Transactions AreParticipating Securities” (“FSP EITF 03-6-1”).  FSP EITF 03-6-1 states that unvestedshare-based payment awards that contain nonforfeitable rights to dividends ordividend equivalents (whether paid or unpaid) are participating securities (asdefined in EITF 03-06) and,therefore, should be included in the computation of earnings per share pursuantto the two-class method.  However, theaward would not be considered a participating security if the holder forfeitsthe right to receive dividends or dividend equivalents in the event that theaward does not vest.  FSP EITF 03-6-1 is effective forfinancial statements issued for fiscal years beginning after December 15,2008 and interim periods within those years. Upon adoption, FSP EITF 03-6-1requires that all prior-period earnings per share data presented be adjustedretrospectively.  The adoption of FSPEITF 03-6-1 is notexpected to have an impact on the Partnership’s earnings per unit because thedividend equivalent rights granted under the Partnership’s LTIP (see Note** **14) arenot considered participating securities.

 

**Note 18.**               SubsequentEvent

** **

On October 22, 2008, the board of directors of theGeneral Partner declared a quarterly cash distribution of $0.4875 per unit($1.95 per unit on an annualized basis) for the period from July 1, 2008 through September 30, 2008.  On November 14, 2008, the Partnership will pay this cash distribution to itscommon and subordinated unitholders of record as of the close of business November 5, 2008.

 

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

 

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

 

**Forward-LookingStatements**

** **

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

 

·              We may nothave sufficient cash from operations to enable us to pay the minimum quarterlydistribution following establishment of cash reserves and payment of fees andexpenses, including payments to our general partner.

 

·              Asignificant decrease in demand for refined petroleum products in the areasserved by our storage facilities would reduce our ability to make distributionsto our unitholders.

 

·              Our sales ofhome heating oil and residual oil could be significantly reduced by conversionsto natural gas which conversions could have an adverse effect on our results ofoperations and cash available for distribution to our unitholders.

 

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

 

·              Our riskmanagement policies cannot eliminate all commodity risk.  In addition, any noncompliance with our riskmanagement policies could result in significant financial losses.

 

·              Our resultsof operations are influenced by the overall forward market for refinedpetroleum products, and pricing volatility may adversely impact our results.

 

·              We areexposed to trade credit risk in the ordinary course of our business activities.

 

·              We areexposed to risk associated with our trade credit support in the ordinary courseof our business activities.

 

·              Thecondition of credit markets may adversely affect our liquidity.

 

·              Due to ourlack of asset and geographic diversification, adverse developments in theterminals that we use or in our operating areas could reduce our ability tomake distributions to our unitholders.

 

·              We areexposed to performance risk in our supply chain.

 

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

 

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

 

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

 

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

 

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

 

**Overview**

** **

***General***

*** ***

Weown, control or have access to one of the largest terminal networks of refinedpetroleum products in the Northeast.  Weare one of the largest wholesale distributors of gasoline, distillates (such ashome heating oil, diesel and kerosene) and residual oil to wholesalers,retailers and commercial customers in the Northeast.  For the three and nine months ended September 30,2008, we sold approximately $2.3 billion and $7.3 billion,respectively, of refined petroleum products and small amounts 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 derivatives to hedge ourcommodity risk inherent in buying and selling energy commodities.  Through the use of regulated exchanges orderivatives, we maintain a position that is substantially balanced betweenpurchased volumes and sales volumes or future delivery obligations.  We earn a margin by selling the product forphysical delivery to third parties.

 

***Productsand Operational Structure***

*** ***

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

 

Ourbusiness is divided into two segments:

 

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

 

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

 

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

 

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*** ***

***Outlook***

*** ***

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

 

·              *The condition of credit markets may adversely affect ourliquidity. *In recent months,world financial markets experienced a severe reduction in the availability ofcredit.  Although we have not beennegatively impacted by this condition in the short-term, it is difficult topredict its impact on us in future quarters. Possible negative impacts could include a decrease in the availabilityof borrowings under our credit agreement, an increased counterparty credit riskon our derivatives contracts and the requirement by contractual counterpartiesof us to provide collateral.  In addition,we could experience a tightening of trade credit from our suppliers.

 

·              *We commit substantial resources to pursuingacquisitions, though there is no certainty that we will successfully completeany acquisitions or receive the economic results we anticipate from completedacquisitions.* Consistent with our business strategy, we are continuously engaged indiscussions with potential sellers of terminalling, storage and/or marketingassets and related businesses.  In aneffort to prudently and economically leverage our asset base, knowledge baseand skill sets, management has also expanded its efforts to pursue businessesthat are closely related to or significantly intertwined with our existinglines of business.  Our growth largelydepends on our ability to make accretive acquisitions.  We may be unable to make such accretiveacquisitions for a number of reasons, including, but not limited to, thefollowing:  (1) we are unable toidentify attractive acquisition candidates or negotiate acceptable purchase contracts;(2) we are unable to raise financing for such acquisitions on economicallyacceptable terms; or (3) we are outbid by competitors.  In addition, we may consummate acquisitionsthat at the time of consummation we believe will be accretive, but that ultimatelymay not be accretive.  If any of theseevents were to occur, our future growth would be limited.  We can give no assurance that our current orfuture acquisition efforts will be successful or that any such acquisition willbe completed on terms that are favorable to us.

 

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

 

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

 

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

 

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·              *Our results of operations are influenced by theoverall forward market for refined petroleum products, and pricing volatilitymay adversely impact our results.** ***Results from our marketing and terminallingoperations are influenced by the product prices, the market for refinedpetroleum products and pricing volatility. When prices for refined petroleum products are high, some of ourcustomers may have insufficient credit to purchase supply from us at theirhistorical purchase volumes and their customers may adopt conservation measureswhich reduce consumption, thereby reducing demand for product.  Furthermore, when prices increase rapidly anddramatically, we may be unable to promptly pass our additional costs to ourcustomers, resulting in lower margins for us which could adversely affect ourresults of operations.

 

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

 

**Results of Operations**

** **

***EvaluatingOur Results of Operations***

*** ***

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

 

*NetProduct Margin*

* *

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

 

*Gross Profit*

 

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

 

*Selling,General and Administrative Expenses*

* *

OurSG&A expenses include marketing costs, corporate overhead, employeesalaries and benefits, pension and 401(k) plan expenses, discretionarybonuses, non-interest financing costs, professional fees and informationtechnology expenses.  Employee-relatedexpenses including employee salaries, discretionary bonuses and related payrolltaxes, benefits and pension and 401(k) plan expenses are paid by ourgeneral partner which, in turn, is reimbursed for these expenses by us.

 

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* *

*OperatingExpenses*

* *

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

 

*DegreeDay*

* *

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

 

*Adjusted Net Income Per Diluted Limited Partner Unit*

 

Weuseadjustednetincomeperdilutedlimitedpartnerunittomeasureourfinancialperformanceonaper-unitbasis.  Adjustednetincomeperdilutedlimitedpartnerunitisdefinedasnetincomeafteraddingbackthetheoreticalamountallocatedtothegeneralpartner’sinterestasprovidedunderEITF03-06andanon-cashreductioninnetincomeavailabletolimitedpartnersunderEITF98-05,dividedbytheweightedaveragenumberofoutstandingdilutedcommonandsubordinatedunits,orlimitedpartnerunits,duringtheperiod.

 

Net income per diluted limited partner unit as dictated byEITF 03-06 is theoretical and pro forma in nature and does not reflect theeconomic probabilities of whether earnings for an accounting period would orcould be distributed to unitholders.  Thepartnership agreement does not provide for the quarterly distribution of netincome; rather, it provides for the distribution of available cash, which is acontractually defined term that generally means all cash on hand at the end ofeach quarter after establishment of sufficient cash reserves required tooperate our business.  Accordingly, thedistributions we historically paid and will pay in future periods are notimpacted by net income per diluted limited partner unit as dictated byEITF 03-06.

 

The non-cash reduction under EITF 98-05 for the nine months ended September 30,2007 was the result of accounting for the sale of Class B units (seeNote 12 of Notes to Consolidated Financial Statements).  Although EITF 98-05 affected net incomeavailable to limited partners, it did not affect net income or distributablecash flow to limited partners, nor did it affect total partners’ equity.

 

Adjusted net income per diluted limited partner unit is a non-GAAPfinancial measure and should not be considered as an alternative to net incomeper diluted limited partner unit or any other measure of financial performancepresented in accordance with GAAP.  Inaddition, our adjusted net income per diluted limited partner unit may not becomparable to the adjusted net income per diluted limited partner unit orsimilarly titled measure of other companies.

 

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

* *

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

 

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

 

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

 

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

 

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

 

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

 

AdjustedEBITDA and net income as adjusted for one-time gains reflect the exclusion ofthe $14.1 million gain on investment for the nine months ended September 30,2007 (see Note 11 of Notes to Consolidated Financial Statements).  EBITDA, adjusted EBITDA and net income asadjusted for one-time gains should not be considered alternatives to netincome, operating income, cash flow from operating activities or any othermeasure of financial performance or liquidity presented in accordance withGAAP.  EBITDA, adjusted EBITDA and netincome as adjusted for one-time gains exclude some, but not all, items thataffect net income, and these measures may vary among other companies.  Therefore, EBITDA, adjusted EBITDA and netincome as adjusted for one-time gains may not be comparable to similarly titledmeasures of other companies.

 

*DistributableCash Flow*

* *

Distributablecash flow is an important non-GAAP financial measure for our limited partnerssince it serves as an indicator of our success in providing a cash return ontheir investment.  Specifically, thisfinancial measure indicates to investors whether or not we have generatedsufficient cash flow on a current or historic level that can sustain or supportan increase in our quarterly cash distribution. Distributable cash flow is a quantitative standard used by theinvestment community with respect to publicly traded partnerships.  Distributable cash flow reflects the exclusionof the $14.1 million gain on investment for the nine months ended September 30,2007 (see Note 11 of Notes to Consolidated Financial Statements).  Distributable cash flow is a non-GAAPfinancial measure and should not be considered as an alternative to net income,cash flow from operations, or any other measure of financial performancepresented in accordance with GAAP.  Inaddition, our distributable cash flow may not be comparable to distributablecash flow or similarly titled measure of other companies.

 

***Threeand Nine Months Ended September 30, 2008 and 2007***

*** ***

In the third quarter of 2008, we experiencedthe following events which, we believe, led to a negative impact on our resultsof operations:

 
| · | We  believe higher refined petroleum product prices contributed to:                                                                                                         |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                        |
|   | ·                                                                                                                                                                      | higher  financing costs as a result of increased borrowings to finance inventory; |
|   |                                                                                                                                                                        |   |
|   | ·                                                                                                                                                                      | the  conversion by end users to other products (primarily natural gas) from  residual fuel and heating oil; and |
|   |                                                                                                                                                                        |   |
|   | ·                                                                                                                                                                      | energy  conservation. |
|   |                                                                                                                                                                        |
| · | A  decrease in demand for distillates and residual oil due to energy conservation and higher refined  petroleum product prices led to lower volumes sold and lower margins. |
|   |                                                                                                                                                                        |
| · | Temperatures  for the third quarter of 2008 were warmer than normal.                                                                                                        |
|   |                                                                                                                                                                        |
| · | We  had fewer fixed priced sales of heating oil in the third quarter of 2008 than  in the comparable prior period.                                                          |

 

For the first nine months of 2008, weexperienced the following events which, we believe, led to a significantnegative impact on our results of operations:

 
| · | We  believe higher refined petroleum prices contributed to: |
|--------|-------------------------------------------------------------|
|   |                                                        |
|   | ·                                                      | higher  financing costs as a result of increased borrowings to finance inventory; |
|   |                                                        |   |
|   | ·                                                      | the  conversion by end users to other products (primarily natural gas) from  residual fuel and heating oil; and |
|   |                                                        |   |
|   | ·                                                      | energy  conservation. |

 

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| · | A  decrease in demand for distillates and residual oil due to energy conservation, higher refined  petroleum product prices and a decline in heating degree days led to lower  volumes sold and lower margins.             |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                       |
| · | Adverse  market conditions in our markets, including volatility and backwardation, led  to lower margins and intensified competition from other wholesalers.                                                               |
|   |                                                                                                                                                                                                                       |
| · | Temperatures  for first nine months of 2008 were warmer than normal and warmer than the  same period in 2007.                                                                                                              |
|   |                                                                                                                                                                                                                       |
| · | We  had fewer fixed priced sales of heating oil in the first nine months of 2008  than in the comparable prior period.                                                                                                     |
|   |                                                                                                                                                                                                                       |
| · | During  the first quarter of 2008, the opportunistic conversion of certain gasoline  markets to ethanol put us in a temporarily disadvantaged competitive position  while our terminal infrastructure was being converted. |
|   |                                                                                                                                                                                                                       |
| · | Temporary  logistical supply issues related to rail capacity continued into the first  quarter of 2008 which adversely affected the performance of our Burlington,  Vermont facility.                                      |

 

***During the three and nine months ended September 30, 2008, weexperienced higher revenues and higher gasoline sales volumes, primarily due toour 2007 acquisitions of five refined petroleum products terminals fromExxonMobil.  Refined petroleum productand natural gas prices were higher during the three and nine months ended September 30,2008 compared to the same periods in 2007. For the three months ended September 30, 2008, temperatures were19% warmer than normal and 26% colder than last year as measured by aggregateheating degree days.  For the nine monthsended September 30, 2008, temperatures were 7% warmer than normal and 7%warmer than last year as measured by aggregate heating degree days.***

 

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*** ***

***KeyPerformance Indicators***

 

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

 
| ** **                                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                      |       |                             |       |                            |       |   |   |   |   |
| Net income as adjusted for one-time gains  (1)            |       | $                                | 1,007      |                            | $          | 2,530 |   | $ | 8,372 |   | $ | 21,897 |   |
|                                                      |       |                             |       |                            |       |   |   |   |   |
| Adjusted net income per diluted limited  partner unit (2) |       | $                                | 0.08       |                            | $          | 0.19 |   | $ | 0.64 |   | $ | 3.09 |   |
|                                                      |       |                             |       |                            |       |   |   |   |   |
| Adjusted EBITDA (3)                                       |       | $                                | 10,053     |                            | $          | 9,915 |   | $ | 35,322 |   | $ | 39,345 |   |
|                                                      |       |                             |       |                            |       |   |   |   |   |
| Distributable cash flow (4)                               |       | $                                | 4,151      |                            | $          | 4,545 |   | $ | 18,208 |   | $ | 25,381 |   |
|                                                      |       |                             |       |                            |       |   |   |   |   |
| **Wholesale Segment:**                                    |       |                             |       |                            |       |   |   |   |   |
| Volume (gallons)                                          |       | 713,171                          |       | 740,844                         |       | 2,404,319 |   | 2,181,821 |   |
| Sales                                                     |       | $                                | 2,169,936  |                            | $          | 1,539,938 |   | $ | 6,959,244 |   | $ | 4,284,719 |   |
| Net product margin (5)                                    |       |                             |       |                            |       |   |   |   |   |
| Distillates                                               |       | $                                | 12,001     |                            | $          | 18,614 |   | $ | 44,422 |   | $ | 57,910 |   |
| Gasoline                                                  |       | 13,554                           |       | 2,231                           |       | 32,522 |   | 6,165 |   |
| Residual oil                                              |       | 412                              |       | 3,678                           |       | 7,542 |   | 19,050 |   |
| Total                                                     |       | $                                | 25,967     |                            | $          | 24,523 |   | $ | 84,486 |   | $ | 83,125 |   |
| **Commercial Segment:**                                   |       |                             |       |                            |       |   |   |   |   |
| Volume (gallons)                                          |       | 38,439                           |       | 37,008                          |       | 142,018 |   | 185,781 |   |
| Sales                                                     |       | $                                | 102,143    |                            | $          | 58,523 |   | $ | 331,536 |   | $ | 271,008 |   |
| Net product margin (5)                                    |       | $                                | 2,460      |                            | $          | 1,474 |   | $ | 7,389 |   | $ | 8,708 |   |
| **Combined sales and net product margin:**                |       |                             |       |                            |       |   |   |   |   |
| Sales                                                     |       | $                                | 2,272,079  |                            | $          | 1,598,461 |   | $ | 7,290,780 |   | $ | 4,555,727 |   |
| Net product margin (5)                                    |       | $                                | 28,427     |                            | $          | 25,997 |   | $ | 91,875 |   | $ | 91,833 |   |
| Depreciation allocated to cost of sales                   |       | 2,499                            |       | 2,050                           |       | 7,658 |   | 4,012 |   |
| **Combined gross profit**                                 |       | $                                | 25,928     |                            | $          | 23,947 |   | $ | 84,217 |   | $ | 87,821 |   |
|                                                      |       |                             |       |                            |       |   |   |   |   |
| **Weather conditions:**                                   |       |                             |       |                            |       |   |   |   |   |
| Normal heating degree days                                |       | 96                               |       | 96                              |       | 3,781 |   | 3,750 |   |
| Actual heating degree days                                |       | 78                               |       | 62                              |       | 3,527 |   | 3,797 |   |
| Variance from normal heating degree days                  |       | (19                              | )%         | (35                             | )%         | (7 | )% | 1 | % |
| Variance from prior period actual heating  degree days    |       | 26                               | %          | (17                             | )%         | (7 | )% | 9 | % |

 

----

| (1) | Net income as  adjusted for one-time gains is a non-GAAP financial measure which is  discussed above under “—Evaluating Our Results of Operations.” The table below  presents a reconciliation of net income as adjusted for one-time gains to the  most directly comparable GAAP financial measure.                       |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Adjusted net income  per diluted limited partner unit is a non-GAAP financial measure which is  discussed above under “—Evaluating Our Results of Operations.” The table below  presents a reconciliation of adjusted net income per diluted limited partner  unit to the most directly comparable GAAP financial measure. |
| (3) | Adjusted EBITDA is a  non-GAAP financial measure which is discussed above under “—Evaluating Our Results of Operations.” The table below  presents reconciliations of adjusted EBITDA to the most directly comparable  GAAP financial measures.                                                                            |
| (4) | Distributable cash  flow is a non-GAAP financial measure which is discussed above under “—Evaluating Our Results of Operations.” The table below  presents reconciliations of distributable cash flow to the most directly  comparable GAAP financial measures.                                                            |
| (5) | Net product margin is  a non-GAAP financial measure which is discussed above under “—Evaluating Our Results of Operations.” The table above  reconciles net product margin on a combined basis to gross profit, a directly  comparable GAAP financial measure.                                                             |

 

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The following table presents a reconciliationof net income as adjusted for one-time gains to the most directly comparableGAAP financial measure on a historical basis for each period presented:

 
| ** **                                                                      | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                      | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                      | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Reconciliation of net income to net income  as adjusted for one-time gains:** |       |                             |       |                            |       |   |   |   |   |
| Net income                                                                      |       | $                                | 1,007      |                            | $          | 2,530 |   | $ | 8,372 |   | $ | 36,015 |   |
| Gain on sale of investment                                                      |       | —                           |       | —                          |       | — |   | (14,118 | ) |
| Net income as adjusted for one-time gains                                       |       | $                                | 1,007      |                            | $          | 2,530 |   | $ | 8,372 |   | $ | 21,897 |   |

 

The following table presents a reconciliationof adjusted net income per diluted limited partner unit to the most directlycomparable GAAP financial measure on a historical basis for each periodpresented:

 
| ** **                                                                                                                  | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                  | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                                                                  | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Reconciliation of net income per diluted  limited partner unit to adjusted net income per diluted limited partner unit:** |       |                             |       |                            |       |   |   |   |   |
| Net income per diluted limited partner unit  under EITF 03-06 and EITF 98-05                                      |       | $                                | 0.08       |                            | $          | 0.19 |   | $ | 0.62 |   | $ | 0.66 |   |
| Dilutive impact of theoretical distribution  of earnings under EITF 03-06                                              |       | —                           |       | —                          |       | 0.02 |   | 1.10 |   |
| Dilutive impact of non-cash reduction under  EITF 98-05                                                                |       | —                           |       | —                          |       | — |   | 1.33 |   |
| Adjusted net income per diluted limited  partner unit                                                                       |       | $                                | 0.08       |                            | $          | 0.19 |   | $ | 0.64 |   | $ | 3.09 |   |

 

Thefollowing table presents reconciliations of EBITDA and adjusted EBITDA to themost directly comparable GAAP financial measures on a historical basis for eachperiod presented (in thousands):

 
| ** **                                                                                                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                 | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                                                 | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Reconciliation of net income to EBITDA and  Adjusted EBITDA:**                                           |       |                             |       |                            |       |   |   |   |   |
| Net income                                                                                                 |       | $                                | 1,007      |                            | $          | 2,530 |   | $ | 8,372 |   | $ | 36,015 |   |
| Depreciation and amortization                                                                              |       | 3,749                            |       | 2,771                           |       | 11,241 |   | 6,107 |   |
| Interest expense                                                                                           |       | 5,297                            |       | 4,614                           |       | 15,414 |   | 10,453 |   |
| Income tax expense                                                                                         |       | —                           |       | —                          |       | 295 |   | 888 |   |
| EBITDA                                                                                                     |       | 10,053                           |       | 9,915                           |       | 35,322 |   | 53,463 |   |
| Gain on sale of investment                                                                                 |       | —                           |       | —                          |       | — |   | (14,118 | ) |
| Adjusted EBITDA                                                                                            |       | $                                | 10,053     |                            | $          | 9,915 |   | $ | 35,322 |   | $ | 39,345 |   |
|                                                                                                       |       |                             |       |                            |       |   |   |   |   |
| **Reconciliation of cash flow provided by  (used in) operating activities to EBITDA and Adjusted EBITDA:** |       |                             |       |                            |       |   |   |   |   |
| Cash flow provided by (used in) operating  activities                                                      |       | $                                | 60,097     |                            | $          | (120,936 | ) | $ | 54,124 |   | $ | (19,639 | ) |
| Net changes in operating assets and  liabilities                                                           |       | (55,341                          | )          | 126,237                         |       | (34,511 | ) | 61,761 |   |
| Interest expense                                                                                           |       | 5,297                            |       | 4,614                           |       | 15,414 |   | 10,453 |   |
| Income tax expense                                                                                         |       | —                           |       | —                          |       | 295 |   | 888 |   |
| EBITDA                                                                                                     |       | 10,053                           |       | 9,915                           |       | 35,322 |   | 53,463 |   |
| Gain on sale of investment                                                                                 |       | —                           |       | —                          |       | — |   | (14,118 | ) |
| Adjusted EBITDA                                                                                            |       | $                                | 10,053     |                            | $          | 9,915 |   | $ | 35,322 |   | $ | 39,345 |   |

 

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The following table presents reconciliationsof distributable cash flow to the most directly comparable GAAP financialmeasures on a historical basis for each period presented (in thousands):

 
| ** **                                                                                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                              | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                                                              | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Reconciliation of net income to  distributable cash flow:**                                           |       |                             |       |                            |       |   |   |   |   |
| Net income                                                                                              |       | $                                | 1,007      |                            | $          | 2,530 |   | $ | 8,372 |   | $ | 36,015 |   |
| Depreciation and amortization                                                                           |       | 3,749                            |       | 2,771                           |       | 11,241 |   | 6,107 |   |
| Gain on sale of investment                                                                              |       | —                           |       | —                          |       | — |   | (14,118 | ) |
| Maintenance capital expenditures                                                                        |       | (605                             | )          | (756                            | )          | (1,405 | ) | (2,623 | ) |
| Distributable cash flow                                                                                 |       | $                                | 4,151      |                            | $          | 4,545 |   | $ | 18,208 |   | $ | 25,381 |   |
|                                                                                                    |       |                             |       |                            |       |   |   |   |   |
| **Reconciliation of cash flow provided by  (used in) operating activities to distributable cash flow:** |       |                             |       |                            |       |   |   |   |   |
| Cash flow provided by (used in) operating  activities                                                   |       | $                                | 60,097     |                            | $          | (120,936 | ) | $ | 54,124 |   | $ | (19,639 | ) |
| Net changes in operating assets and  liabilities                                                        |       | (55,341                          | )          | 126,237                         |       | (34,511 | ) | 61,761 |   |
| Gain on sale of investment                                                                              |       | —                           |       | —                          |       | — |   | (14,118 | ) |
| Maintenance capital expenditures                                                                        |       | (605                             | )          | (756                            | )          | (1,405 | ) | (2,623 | ) |
| Distributable cash flow                                                                                 |       | $                                | 4,151      |                            | $          | 4,545 |   | $ | 18,208 |   | $ | 25,381 |   |

 

***Consolidated Results***

 

Ourtotal sales for the third quarter of 2008 increased by $673.6 million, or42%, to $2,272.1 million compared to $1,598.5 million for the sameperiod in 2007.  The increase was driven primarily by higher refined petroleum product pricesfor the three months ended September 30, 2008 compared to the same periodin 2007 and our terminal acquisition in Glenwood Landing and Inwood, New Yorkin November 2007.  Our aggregatevolume of product sold decreased by approximately 27 million gallons, or 3%, to 751** **milliongallons.  The decrease in volume was dueto decreases of 73 million and 22 million gallons indistillates and residual oil, respectively, primarily due to conservation byusers of home heating oil, warmer-than-normal weather and conversion and fuelswitching related to increased residual oil prices relative to the prices ofnatural gas and intensified competition in the marketplace.  The decrease was offset by an increase of approximately 68 million gallons in gasoline, mostly due toour November 2007 terminal acquisition.  Thenumber of actual heating degree days increased 26% to 78 for the quarter ended September 30,2008 compared with 62 for the same period in 2007.  Our gross profit for the third quarterof 2008 was $25.9** **million, an increase of $2.0** **million, or 8%, compared to $23.9** **millionfor the same period in 2007.  Theincrease was primarily due to a higher net product margin in our Wholesalesegment for gasoline, offset by lower net product margins in distillates andresidual oil.

 

Ourtotal sales for the nine months ended September 30,2008 increased by $2,735.1 million, or 60%, to $7,290.8 millioncompared to $4,555.7 million for the same period in 2007.  Theincrease was driven primarily by higher refined petroleum product prices forthe nine months ended September 30, 2008 compared to the same period in2007 and our terminal acquisitions in Albany and Newburgh, New York andBurlington, Vermont in May 2007 and in Glenwood Landing and Inwood, NewYork in November 2007.  Ouraggregate volume of product sold increased by approximately 179 million gallons, or 8%, to 2,546** **milliongallons.  The increase in volume was dueto an increase of approximately 347 million gallons in gasoline, mostly due to our 2007 terminal acquisitions,offset by decreases of 99 million and 67 million gallons indistillates and residual oil, respectively. These decreases were primarily due to conservation by users of homeheating oil, warmer-than-normal weather and conversion and fuel switching relatedto increased residual oil prices relative to the prices of natural gas andintensified competition in the marketplace. The number of actual heatingdegree days decreased 7% to 3,527 for the nine months ended September 30,2008 compared with 3,797 for the same period in 2007.  Our gross profit for the nine months ended September 30, 2008 was$84.2** **million, a decrease of $3.6** **million, or 4%, compared to $87.8** **millionfor the same period in 2007.  Thedecrease was primarily due to lower net product margins in distillates andresidual oil and an increase in depreciation on our terminals, which isincluded in cost of sales, as a result of our 2007 terminal acquisitions.  The decrease was significantly offset by ahigher net product margin in our Wholesale segment for gasoline.

 

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*Table of Contents*

* *

*WholesaleSegment*

* *

Distillates.  Wholesale distillate sales for the threemonths ended September 30, 2008 were $677.4 million compared to$582.8 million for the three months ended September 30, 2007.  During the first nine months of 2008,wholesale distillate sales were $3,164.4 million compared to$2,215.7 million for the same period in 2007.  The increases of $94.6 million, or 16%,and $948.7 million, or 43%, for the three and nine months ended September 30,2008, respectively, were due to significant increases in refined petroleumproduct prices for the three and nine months ended September 30, 2008compared to the same periods in 2007.  Although we experienced increases indistillate sales, our distillate volumes sold were negatively impacted by thehigher price for heating oil, warmer than normal temperatures, meaningfulenergy conservation and less favorable buying opportunities in the thirdquarter of 2008 compared to the third quarter of 2007.  Primarily due to these same factors, our netproduct margin contribution from distillate sales decreased by $6.6 million, or 35%, to $12.0 million for the three months ended September 30,2008 and by $13.5 million,or 23%, to $44.4 millionfor the nine months ended September 30, 2008 compared to the same periodsin 2007.  For the nine months ended September 30,2008, the decrease in net product margin for Wholesale distillates alsoreflected an increase of $2.5 million****related to a changein estimate of our inventory reserve account recorded in the second quarter of2008.

 

Gasoline.  Wholesale gasoline sales for the three monthsended September 30, 2008 were $1,468.8 million compared to$915.9 million for the same period in 2007.  During the first nine months of 2008,wholesale gasoline sales were $3,727.5 million compared to$1,995.2 million for the same period in 2007.  The increasesof $552.9 million, or 60%, and$1,732.3 million, or 87%, for the three and nine months ended September 30,2008, respectively, were dueprimarily to our 2007 terminal acquisitions, an increase in gasoline volumesold and higher prices.  Our net product margin contribution fromgasoline sales increased by $11.4 million to $13.6 million for thethree months ended September 30, 2008 and by $26.3 millionto $32.5 million for thenine months ended September 30, 2008 compared to the same periodsin 2007.  We attribute the increases innet product margin to the new business generated by our 2007 terminalacquisitions, better margins overall in our gasoline business, and the prioryear gasoline business start-up costs associated with our Albany and Newburgh,New York and Burlington, Vermont terminal acquisition in May of 2007 thatwere not incurred in 2008.  Although weexperienced increases in gasoline sales, volume sold and net product margin,these results were negatively impacted for the nine months ended September 30,2008 as a result of the following first quarter 2008 events: 1) theopportunistic conversion of certain gasoline markets to ethanol which put us ina temporarily disadvantaged competitive position while our terminalinfrastructure was being converted; and 2) the temporary logistical supplyissues related to rail capacity which adversely affected the performance of ourBurlington, Vermont facility.  We havesince successfully completed the conversion to ethanol at our facilities whichare now fully operational and full rail service to our Burlington, Vermontfacility has resumed.

 

ResidualOil.  Wholesale residualoil sales for the three months ended September 30, 2008 were$23.8 million compared to $41.2 million for the three months ended September 30,2007.  During the first nine months of2008, residual oil sales were $67.3 million compared to $73.9 millionfor the same period in 2007.  Thedecreases of $17.4 million, or 42%, and $6.6 million, or 9%, for thethree and nine months ended September 30, 2008, respectively, wereprimarily due to declines in residual oil volume sold despite increases inrefined petroleum product prices.  Our net product margin contributionfrom residual oil sales decreased by $3.3 million, or 89%, to$0.4 million for the three months ended September 30, 2008 and by $11.5 million, or 60%, to $7.6 million for the nine months ended September 30,2008 compared to the same periods in 2007 due to conversion and fuelswitching related to increased residual oil prices relative to the prices ofnatural gas and intensified competition in the marketplace.

 

*CommercialSegment*

* *

Inour Commercial segment, residual oil accounted for approximately 63% and 71% oftotal commercial volume sold for the three months ended September 30, 2008and 2007, respectively, and approximately 67% and 76% of total commercialvolume sold for the nine months ended September 30, 2008 and 2007,respectively.  Distillates, gasoline andnatural gas accounted for the remainder of the total volume sold.

 

Commercialresidual oil sales for the quarter ended September 30, 2008 increased by54% compared to the same period in 2007 despite an 8% decrease in volumesold.  For the nine months ended September 30,2008, residual oil sales increased by 9% compared to the same period in 2007despite a 33% decrease in volume sold. We attribute the decreases in volume sold to the competitive pricingfrom natural gas and reductions in production by certain industry participantsin our territory.

 

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*Selling, General and Administrative Expenses*

 

SG&Aexpenses increased by $0.9 million, or 9%, to $10.4 million for thethree months ended September 30, 2008 compared to $9.5 million forthe same period in 2007.  The increasewas primarily due to increases of $0.3 million in bank fees,$0.2 million in employee benefits, $0.1 million in professional feesand $0.3 million in other SG&A expenses.

 

SG&Aexpenses decreased by $2.6 million, or 8%, to $31.7 million for thenine months ended September 30, 2008 compared to $34.3 million forthe same period in 2007.  The decreasewas primarily due to decreases of $2.9 million in accrued bonuses,$0.4 million in professional fees, and $0.8 million in other SG&Aexpenses, offset by increases of $0.7 million in salaries, partly due toadditional employees to support our terminal acquisitions, $0.4 million incompensation cost on our long-term incentive plan and $0.4 million in bankfees.

 

*OperatingExpenses*

* *

Operatingexpenses increased by $1.5 million, or 21%, to $8.4 million for thethree months ended September 30, 2008 compared to $6.9 million forthe same period in 2007.  The increasewas primarily due to $1.2 million in costs associated with operating ourGlenwood Landing and Inwood, New York terminals acquired in November 2007,$0.4 million in costs associated with operating our Albany and Newburgh,New York and Burlington, Vermont terminals acquired in May 2007, and$0.4 million in costs associated with our leased terminal in Providence,Rhode Island, offset by a decrease of $0.4 million in costs related to thenon-renewal of the terminal lease in New Haven, Connecticut and$0.1 million in other operating costs.

 

Operatingexpenses increased by $7.1 million, or 37%, to $26.2 million for thenine months ended September 30, 2008 compared to $19.1 million forthe same period in 2007.  The increasewas primarily due to $3.4 million in costs associated with operating ourGlenwood Landing and Inwood, New York terminals acquired in November 2007,$3.0 million in costs associated with operating our Albany and Newburgh,New York and Burlington, Vermont terminals acquired in May 2007, and$1.0 million in costs associated with our leased terminal in Providence,Rhode Island, offset by a decrease of $0.3 million in costs related to thenon-renewal of the terminal lease in New Haven, Connecticut.

 

***Interest Expense***

*** ***

Interestexpense for the three months ended September 30, 2008 increased by $0.7 million,or 15%, to $5.3 million compared to $4.6 million for the same periodin 2007.  Interest expense for the ninemonths ended September 30, 2008 increased by $5.0 million, or 47%, to$15.4 million compared to $10.4 million for the same period in 2007.  We attribute the increases primarily tohigher average balances on our working capital credit facility from carryinghigher average balances on inventories and accounts receivable due to increasedrefined petroleum product prices.  Inaddition, we had increased borrowings on our working capital and acquisitionfacilities to fund our terminal acquisitions in May and November of2007.

 

***Gain on Sale of Investment***

*** ***

***In March 2007, we sold our***investmentin NYMEX Holdings, Inc. along with our NYMEX seats for approximately$15.3 million and realized a gain of approximately $14.1 million forthe nine months ended September 30, 2007.

*** ***

**Liquidity and CapitalResources**

** **

***Liquidity***

** **

Our primary liquidity needs are to fund our working capitalrequirements and our capital expenditures. Cash generated from operations and our working capital revolving creditfacility provide our primary sources of liquidity.  Working capital increased by $18.6 millionto $189.6 million at September 30, 2008 compared to$171.0 million at December 31, 2007.

 

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On February 14,2008, we paid a cash distribution to our common and subordinated unitholders andour general partner of approximately $6.5 million for the fourth quarterof 2007.  On May 15, 2008, we paid acash distribution to our common and subordinated unitholders and our generalpartner of approximately $6.5 million for the first quarter of 2008.  On August 14, 2008, we paid a cashdistribution to our common and subordinated unitholders and our general partnerof approximately $6.5 million for the second quarter of2008.  On October 22, 2008, the board of directors of ourgeneral partner declared a quarterly cash distribution of $0.4875 perunit for the period from July 1, 2008 through September 30, 2008($1.95 per unit on an annualized basis) to our common and subordinatedunitholders of record as of the close of business November 5, 2008.  We expect to pay the cashdistribution of approximately $6.5 million on November 14, 2008.

 

***CapitalExpenditures***

*** ***

Our terminalling operations require investments to expand, upgrade andenhance existing operations and to meet environmental and operations regulations.  Our capital requirements primarily consist ofmaintenance capital expenditures and expansion capital expenditures.  Maintenance capital expenditures representcapital expenditures to replace partially or fully depreciated assets tomaintain the operating capacity of, or sales generated by, existing assets andextend their useful lives, such as expenditures required to maintain equipmentreliability, tankage and pipeline integrity and safety, and to addressenvironmental regulations.  We hadapproximately $1.4 million and $2.6 million in maintenance capitalexpenditures for the nine months ended September 30, 2008 and 2007,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.

 

Expansion capital expenditures include expenditures to acquire assetsto grow our business and to expand existing facilities, such as projects thatincrease operating capacity by increasing tankage, diversifying productavailability at various terminals and adding terminals.  We generally fund our expansion capitalexpenditures through our cash generated from operations, our acquisition andworking capital revolving credit facilities or by issuing additionalequity.  We had approximately$6.9 million and $109.6 million in expansion capital expenditures forthe nine months ended September 30, 2008 and 2007, respectively, toincrease our operating capacity and capabilities.  Specifically, for the nine months ended September 30,2008, expansion capital expenditures consisted of approximately$4.9 million in expenditures related to construction in process on ournewly leased terminal in Providence, Rhode Island, $1.1 million related toconversion expenditures to handle ethanol-based gasoline and $0.9 millionin other expansion capital expenditures. For the nine months ended September 30, 2007, expansion capitalexpenditures consisted of $102.6 million in terminal acquisitions for theAlbany and Newburgh, New York and Burlington, Vermont terminals acquired in May of2007, $5.4 million for pre-acquisition deposits, construction expendituresand other costs and $1.6 million in other expansion capital expenditures.

 

We anticipate that maintenance capital expenditures will be funded withcash generated by operations.  We believethat we will have sufficient liquid assets, cash flow from operations,borrowing capacity under our credit agreement and the ability to issueadditional common units and/or debt securities to meet our financialcommitments, debt service obligations, contingencies and anticipated capitalexpenditures.  However, we are subject tobusiness and operational risks that could adversely affect our cash flow.  A material decrease in our cash flows wouldlikely produce an adverse effect on our borrowing capacity.

 

***CashFlow***

*** ***

The following table summarizes cash flow activity (in thousands):

 
| ** **                                           | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                           | ** ** | **September 30,**          | ** ** |
| ** **                                           | ** ** | **2008**                        | ** ** | **2007** | ** ** |
|                                                 |       |                            |       |   |   |
| Net cash provided by (used in) operating  activities |       | $                               | 54,124     |   | $ | (19,639 | ) |
| Net cash used in investing activities                |       | $                               | (8,288     | ) | $ | (96,953 | ) |
| Net cash (used in) provided by financing activities  |       | $                               | (47,341    | ) | $ | 115,659 |   |

 

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Cash flow from operating activities generally reflects the purchasingpatterns of inventory, the timing of collections on our accounts receivable,the seasonality of our business, fluctuations in refined petroleum productprices, our working capital requirements related to acquisitions and generalmarket conditions.

 

Net cash provided by operating activities was $54.1 million forthe nine months ended September 30, 2008 compared to cash used inoperating activities of $19.6 million for the nine months ended September 30,2007, for a year-over-year increase in cash provided by operating activities of$73.7 million.

 

During the nine months ended September 30, 2008, refined petroleumproduct prices rose significantly during the first half of 2008 before theydeclined during the third quarter of 2008, causing the carrying values of ouraccounts receivable, inventories and accounts payable for the nine months endedSeptember 30, 2008 to be less than the peak values we experienced at thebeginning of the year.  As a result, wehad decreases of $125.0 million in inventories, $89.7 million inaccounts receivable, $78.5 million in accounts payable and$18.5 million accrued expenses and all other current liabilities.

 

During the nine months ended September 30, 2007, we experiencedincreases in refined petroleum products prices, and we funded additionalworking capital requirements due to our acquisition of the Albany and Newburgh,New York and Burlington, Vermont terminals in May of 2007.  As a result, for the nine months ended September 30,2007, we had increases of $91.1 million in inventories, $130.8 inaccounts receivable, $78.6 million in accounts payable and$14.8 million in accrued expenses and all other current liabilities.

 

The increase in cash provided by operating activities is also reflectedin the year-over-year decrease in net income of $27.6 million, offset by$14.1 million representing the gain on the sale of our NYMEX Holdings, Inc.shares and related NYMEX seats in the first quarter of 2007, and a$175.8 million change in the fair value of our forward fixed pricecontracts and other derivatives.  For thenine months ended September 30, 2008, contracts supporting our forwardfixed price hedge program required margin payments of approximately$86.6 million to the New York MercantileExchange due to market direction while for the nine months ended September 30,2007, similar hedging activity provided funds from the New York Mercantile Exchange of approximately$89.2 million.

 

Net cash used in investing activities decreased by $83.3 millionfor the nine months ended September 30, 2008 compared to the same periodin 2007 and included $8.3 million in total capital expenditures comprisedof $1.4 million in maintenance capital expenditures and $6.9 millionin expansion capital expenditures ($4.9 million related to construction inprocess on our leased terminal in Providence, Rhode Island, $1.1 millionrelated to conversion expenditures to handle ethanol-based gasoline and$0.9 million in other expansion capital expenditures).  Comparatively, for the nine months ended September 30,2007, we had $112.2 million in total capital expenditures comprised of$2.6 million in maintenance capital expenditures and $109.6 millionin expansion capital expenditures ($102.6 million to acquire the Albanyand Newburgh, New York and Burlington, Vermont terminals, $5.4 million forpre-acquisition deposits, construction expenditures and other costs and$1.6 million in other expansion capital expenditures), and receivedproceeds of $15.3 million from the sale of our investment NYMEX Holdings, Inc.and related seats.

 

Net cash used in financing activities increased by $163.0 millionfor the nine months ended September 30, 2008 compared to the same periodin 2007 and included $26.5 million in net payments on our creditfacilities, $19.6 million in cash distributions to our common andsubordinated unitholders and our general partner, and $1.2 million inpayments on our note payable. Comparatively, for the nine months ended September 30, 2007, netcash provided by financing activities included $83.7 million in net proceedsfrom our credit facilities and $49.1 million in net proceeds from theissuance of Class B units, offset by $16.9 million in cashdistributions to our common and subordinated unitholders and our generalpartner.

 

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*** ***

***Credit Agreement***

 

We, our general partner, our operating company and our operatingsubsidiaries have a four-year senior secured credit agreement with totalavailable commitments of $750.0 million. We repay amounts outstanding and reborrow funds based on our workingcapital requirements and, therefore, classify as a current liability theportion of the working capital revolving credit facility we expect to pay downduring the course of the year.  Thelong-term portion of the working capital revolving credit facility is theamount we expect to be outstanding during the entire year.  The credit agreement will mature on April 22,2011.  There are three facilities underour credit agreement:

 
| · | a working capital  revolving credit facility to be used for working capital purposes and letters  of credit in the principal amount equal to the lesser of our borrowing base  and $650.0 million, of which two $50.0 million seasonal overline  facilities are available each year only during the period between  September 1 and June 30. On July 21, 2008, the credit  agreement was amended to reinstate the seasonal overline period from  July 21, 2008 through August 31, 2008; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | an $85.0 million  acquisition facility to be used for funding acquisitions similar to our  business line that have a purchase price of $25.0 million or less or  $35.0 million or less in the aggregate in any 12-month period; and                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | a $15.0 million  revolving credit facility to be used for general purposes, including payment  of distributions to our unitholders.                                                                                                                                                                                                                                                                                                                                                                                   |

 

In addition, the credit agreement has an accordion feature whereby wemay request on the same terms and conditions of our 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 $200.0 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 $750.0** **million.

 

During the period from January 1, 2008 through July 20, 2008,borrowings under our working capital revolving credit, acquisition andrevolving credit facilities bore interest at our option at (1) theEurodollar rate, plus 1%, 11⁄2% and 11⁄2%, respectively, (2) the cost of fundsrate, plus 1%, 13⁄4% and 11⁄2%, respectively, or (3) the bank’s baserate.  Commencing July 21, 2008, borrowingsunder the working capital revolving credit facility bear interest at (1) theEurodollar rate plus 1.75% to 2.25%, (2) the cost of funds rate plus 1.75%to 2.25%, or (3) the base rate plus 0.75% to 1.25%, each depending on thepricing level provided in the credit agreement, which in turn depends upon theCombined Interest Coverage Ratio (as defined in the credit agreement). Borrowings under the acquisition and revolving credit facilities bear interestat (1) the Eurodollar rate plus 2.25% to 2.75%, (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.  The average interest rates for thethree and nine months ended September 30, 2008 were approximately 4.5% and4.3%, respectively.  The average interestrate for each of the three and nine months ended September 30, 2007 was6.4%.

 

We incur a letter of credit fee of 2% per annum for each letter ofcredit issued.  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.

 

As of September 30, 2008, we had total borrowings outstandingunder our credit agreement of $468.5 million, including $71.2 millionoutstanding on our acquisition facility, and outstanding letters of credit of$69.7 million.  The total remainingavailability for borrowings and letters of credit at September 30, 2008was $211.8 million.

 

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The credit agreement imposes covenants that require us to maintaincertain minimum working capital amounts, capital expenditure limits, a minimumEBITDA ratio, a minimum interest coverage ratio and a maximum leverageratio.  On July 18, 2008, the creditagreement was amended whereby the minimum EBITDA as at the end of the June 30,2008 fiscal quarter and each fiscal quarter ending thereafter is not less than$30.0 million for the period of four consecutive fiscal quarters mostrecently ended.  In addition, the minimumcombined interest coverage ratio was reduced to 1.75:1.00 for the quarter endedSeptember 30, 2008.  We were in compliancewith all covenants at September 30, 2008.

 

The credit agreement provides that in each calendar year theoutstanding amount under the working capital revolving credit facility must beequal to or less than $263.0 million for a period of ten consecutivecalendar days.  On September 26,2008, the credit agreement was amended which included, among other things,acknowledgment of compliance of this provision for the year ended December 31,2008.  It is anticipated that theseasonal decrease in working capital as we exit our heating season willcontribute to a decrease in borrowings outstanding under our credit agreement.

 

The credit agreement limits distributions to our unitholders toavailable cash and permits borrowings to fund such distributions only under the$15.0 million revolving credit facility. The revolving credit facility is subject to an annual “clean-down”period, requiring us to reduce the amount outstanding under the revolvingcredit facility to $0 for 30 consecutive calendar days in each calendaryear.

 

Our obligations under the credit agreement are secured by substantiallyall of our assets and the assets of our operating company and operatingsubsidiaries.

 

The lending 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/n/a TD BankNorth, N.A.); Wells Fargo Bank, N.A.; Wachovia Bank, NationalAssociation; and Calyon New York Branch.

 

***Off-Balance Sheet Arrangements***

 

We have no off-balance sheet arrangements.

 

**CriticalAccounting Policies and Estimates**

** **

Management’s Discussion and Analysis of Financial Condition and Resultsof Operations discusses our consolidated financial statements, which have beenprepared in accordance with GAAP.  Thepreparation of these consolidated financial statements requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities at the dateof the consolidated financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results may differ from these estimates under differentassumptions or conditions.

 

These estimates are based on our knowledge and understanding of currentconditions and actions that we may take in the future.  Changes in these estimates will occur as aresult of the passage of time and the occurrence of future events.  We have identified the following estimatesthat, in our opinion, are subjective in nature, require the exercise ofjudgment, and involve complex analysis: inventory, leases, revenue recognition, derivative financial instrumentsand environmental and other liabilities.

 

The significant accounting policies and estimates that we have adoptedand followed in the preparation of our consolidated financial statements aredetailed in Note 2 of Notes to Financial Statements, “Summary ofSignificant Accounting Policies” included in our Annual Report on Form 10-Kfor the year ended December 31, 2007. Except as discussed in Notes 15 and 17 of Notes to Consolidated Financial Statements related to the adoptionof SFAS No. 157, there have been no subsequent changes in thesepolicies and estimates that had a significant impact on our financial conditionand results of operations for the periods covered in this report.

 

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**Recent Accounting Pronouncements**

 

A description and related impact expected from the adoption of certainnew accounting pronouncements is provided in Note 17 of Notes toConsolidated Financial Statements.

 

**Item 3.       Quantitative and Qualitative Disclosuresabout Market Risk**

 

Market risk is the risk of loss arising from adverse changes in marketrates and prices.  The principal marketrisks to which we are exposed are interest rate risk and commodity risk.  We utilize two interest rate collars tomanage exposure to interest rate risk and various derivative instruments tomanage exposure to commodity risk.

 

***Interest Rate Risk***

 

We utilize variable rate debt and are exposed to market risk due to thefloating interest rates on our credit facility. Therefore, from time to time, we utilize interest rate collars to hedgeinterest obligations on specific and anticipated debt issuances.

 

During the period from January 1, 2008 through July 20, 2008,borrowings under our working capital revolving credit, acquisition credit andrevolving credit facilities bore interest at our option at (1) theEurodollar rate, plus 1%, 11⁄2% and 11⁄2 %, respectively, (2) the cost offunds rate, plus 1%, 13⁄4% and 11⁄2 %, respectively, or (3) the bank’s baserate.  Commencing July 21, 2008, borrowingsunder the working capital revolving credit facility bear interest at (1) theEurodollar rate plus 1.75% to 2.25%, (2) the cost of funds rate plus 1.75%to 2.25%, or (3) the base rate plus 0.75% to 1.25%, each depending on thepricing level provided in the credit agreement, which in turn depends upon theCombined Interest Coverage Ratio (as defined in the credit agreement). Borrowings under the acquisition and revolving credit facilities bear interestat (1) the Eurodollar rate plus 2.25% to 2.75%, (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.  The average interest rates for thethree and nine months ended September 30, 2008 were approximately 4.5% and4.3%, respectively.  The average interestrate for each of the three and nine months ended September 30, 2007 was6.4%.

 

As of September 30, 2008, we had total borrowings outstandingunder the credit agreement of $468.5 million and outstanding letters ofcredit of $69.7 million.  The impactof a 1% increase in the interest rate on this amount of debt would haveresulted in an increase in interest expense, and a corresponding decrease inour results of operations, of approximately $4.7 million annually,assuming, however, that our indebtedness remained constant throughout the year.

 

We executed twozero premium interest rate collars with major financial institutions.  Each collar is designated as a cash flowhedge and accounted for under the provisions of SFAS No. 133.  The first collar, which became effective on May 14,2007 and expires on May 14, 2011, is used to hedge the variability ininterest payments due to changes in the three-month LIBOR rate with respect to$100.0 millionof long-term three-month LIBOR-based borrowings.  Under the first collar, we capped ourexposure at a maximum three-month LIBOR rate of 5.75%.  In addition, we established a minimum floorthree-month LIBOR rate of 3.75%. Whenever the three-month LIBOR rate is greater than the cap, we receivefrom the respective financial institution the difference between the cap and thecurrent three-month LIBOR rate on the $100.0 million of long-termthree-month LIBOR-based borrowings. Conversely, whenever the three-month LIBOR rate is lower than the floor,we remit to the respective financial institution the difference between the floorand the current three-month LIBOR rate on the $100.0 million of long-termthree-month LIBOR-based borrowings.  Asof September 30, 2008, the three-month LIBOR rate of 2.8% was lowerthan the floor rate.  As a result, wewill remit to the respective financial institution the difference between thefloor rate and the current rate which amounted to approximately $126,000.

 

On September 29,2008, we executed our second zero premium interest rate collar.  The second collar, which became effective on October 2,2008 and expires on October 2, 2013, is used to hedge thevariability in cash flows in monthly interest payments made on our $100.0 million one-monthLIBOR-based borrowings (and subsequent refinancings thereof) due to changes inthe one-month LIBOR rate.  Under thesecond collar, we capped our exposure at a maximum one-month LIBOR rate of5.50%.  In addition, we established aminimum floor rate of 2.70%.  See Note 5 of Notes to ConsolidatedFinancial Statements for further discussion on the interest rate collars.

 

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***Commodity Risk***

 

We hedge our exposure to price fluctuations with respect to refinedpetroleum products in storage and expected purchases and sales of thesecommodities.  The derivative instrumentsutilized consist primarily of futures contracts traded on the NYMEX andover-the-counter transactions, including swap agreements entered into withestablished financial institutions and other credit-approved energycompanies.  Our policy is generally topurchase only products for which we have a market and to structure our salescontracts so that price fluctuations do not materially 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.

 

While we seek to maintain a position that is substantially balancedwithin our product purchase activities, we may experience net unbalanced positionsfor short 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.

 

We enter into futures contracts to minimize or hedge the impact ofmarket fluctuations on our purchase and forward fixed price sales of refinedpetroleum products.  Any hedgeineffectiveness is reflected in our results of operations.  We utilize the NYMEX, which is a regulatedexchange for energy products that it trades, thereby reducing potentialdelivery and supply risks.  Generally,our practice is to close all NYMEX positions rather than to make or receivephysical deliveries.  With respect toother energy products, we enter into derivative agreements with counterpartiesthat we believe have a strong credit profile, in order to hedge marketfluctuations and/or lock-in margins relative to our commitments.

 

At September 30, 2008, the fair value of all of our commodity riskderivative instruments and the change in fair value that would be expected froma 10% price increase are shown in the table below (in thousands):

 

Gain (loss):

 
| ** **                    | ** ** | **Fair Value at  September 30, 2008** | ** ** | **Effect of 10%****Price Increase** | ** ** |
|-------------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------|------------|
|                          |       |                                                      |       |                                               |       |
| NYMEX contracts               |       | $                                                         | 899        |                                               | $          | (831 | ) |
| Swaps, options and other, net |       | 1,829                                                     |       | 658                                                |       |
|                          |       | $                                                         | 2,728      |                                               | $          | (173 | ) |

 

The fair values of the futures contracts are based on quoted marketprices obtained from the NYMEX.  The fairvalue of the swaps and option contracts are estimated based on quoted pricesfrom various sources such as independent reporting services, industrypublications and brokers.  These quotesare compared to the contract price of the swap, which approximates the gain orloss that would have been realized if the contracts had been closed out at September 30,2008.  For positions where independentquotations are not available, an estimate is provided, or the prevailing marketprice at which the positions could be liquidated is used.  All hedge positions offset physical exposuresto the spot market; none of these offsetting physical exposures are included inthe above table.  Price-risksensitivities were calculated by assuming an across-the-board 10% increase inprice regardless of term or historical relationships between the contractualprice of the instruments and the underlying commodity price.  In the event of an actual 10% change inprompt month prices, the fair value of our derivative portfolio would typicallychange less than that shown in the table due to lower volatility in out-month prices.  We have a daily margin requirement tomaintain a cash deposit with our broker based on the prior day’s market resultson open futures contracts.  The balanceof this deposit will fluctuate based on our open market positions and thecommodity exchange’s requirements.  Therequired brokerage margin balance was $5.4 million at September 30,2008.

 

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We are exposed to credit loss in the event of nonperformance bycounterparties of futures contracts, forward contracts and swap agreements, butdo not anticipate nonperformance by any of these counterparties.  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 all NYMEXderivative transactions and the right of offset exists.  Accordingly, the fair value of all derivativeinstruments is displayed on a net basis.

 

**Item 4.       Controls and Procedures**

 

***DisclosureControls and Procedures***

 

We maintain disclosure controls and procedures that are designed toensure that the information required to be disclosed by us in the reports wefile or submit under the Securities Exchange Act of 1934 (the “Exchange Act”)is recorded, processed, summarized and reported within the time periodsspecified in SEC rules and forms and that information isaccumulated and communicated to our management, including our principalexecutive officer and principal financial officer, as appropriate to allowtimely decisions regarding required disclosure.  Under the supervision and with theparticipation of our principal executive officer and principal financialofficer, management evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) of theExchange Act).  Based on that evaluation,our principal executive officer and principal financial officer concluded thatour disclosure controls and procedures were effective as of the fiscal quarterended September 30, 2008.

 

***Internal Control over Financial Reporting***

 

There has not been any change in our internalcontrol over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) of the Exchange Act) that occurred during the fiscal quarterended September 30, 2008 that has materially affected, or is reasonablylikely to materially affect, our internal control over financial reporting.

 

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**PART II.  OTHER INFORMATION**

 

**Item 1.       Legal Proceedings**

 

***General***

 

Although we may, from time to time, be involved in litigation andclaims arising out of our operations in the normal course of business, we donot believe that we are a party to any litigation that will have a materialadverse impact on our financial condition or results of operations.  Except as described below and in our AnnualReport on Form 10-K for the year ended December 31, 2007, we are notaware of any significant legal or governmental proceedings against us, orcontemplated to be brought against us. We maintain insurance policies with insurers in amounts and withcoverage and deductibles as our general partner believes are reasonable andprudent.  However, we can provide noassurance that this insurance will be adequate to protect us from all materialexpenses related to potential future claims or that these levels of insurancewill be available in the future at economically acceptable prices.

 

***Environmental***

 

As previously disclosed, Global Companies LLC, in addition to severalaffiliates, has been named as one of over 50 defendants in two lawsuitsalleging methyl tertiary-butyl ether (“MTBE”) contamination of groundwater inMassachusetts.  MTBE is an oxygenate thathas been used extensively to reduce motor vehicle tailpipe emissions.  In the cases of Town of Duxbury, et al. v.Amerada Hess Corp., et al., filed December 31, 2003, and City of Lowell v.Amerada Hess Corp., et al., filed December 30, 2004, plaintiffs allegethat manufacturers, refiners and others involved in the distribution ofgasoline containing MTBE are liable for the costs of investigating possibleMTBE groundwater contamination, treating such contaminated groundwater wherefound, and related relief including treble damages and injunctive relief.  The plaintiffs in these cases generally claimto be public water providers or municipal or other government authorities.  These cases have been consolidated inmulti-district litigation with over 60 other MTBE cases in federal court in theSouthern District of New York.  We haveentered into an agreement, in principle, to settle these cases.  We do not believe that settlement of thesecases will have a material impact on our operations.

 

***Other***

 

On September 17, 2008, the Office of the Attorney General of theState of Connecticut issued Interrogatories and Subpoena Duces Tecum (the “Subpoena”)in connection with an investigation of gasoline wholesalers in Connecticut inthe wake of Hurricane Ike.  We respondedto the Subpoena on behalf of Global Companies LLC.  According to the press release issued by theAttorney General’s office, similar subpoenas were also issued to other gasolinewholesalers in Connecticut.  We havetaken steps to comply with the demand. While we cannot predict the outcome of the investigation, we do notexpect that the outcome will have a material adverse effect on our operations.

 

**Item 1A.    Risk Factors**

 

Please refer to our Annual Report on Form 10-K for the year ended December 31,2007 for additional risk factors.

 

***Our results of operations are influenced by theoverall forward market for refined petroleum products, and pricing volatilitymay adversely impact our results.***

*** ***

Results from our marketing and terminalling operations are influencedby the product prices, the market for refined petroleum products and pricingvolatility.  When prices for refinedpetroleum products are high, some of our customers may have insufficient creditto purchase supply from us at their historical purchase volumes and theircustomers may adopt conservation measures which reduce consumption, therebyreducing 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 of operations.

 

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*** ***

***We are exposed to trade credit risk and riskassociated with our trade credit support in the ordinary course of our businessactivities.***

*** ***

We are exposed to risks of loss in the event of nonperformance by ourcustomers and by counterparties of our forward contracts, options and swapagreements and by our suppliers.  Some ofour customers, counterparties and suppliers may be highly leveraged and subjectto their own operating and regulatory risks. Even if our credit review and analysis mechanisms work properly, we mayexperience financial losses in our dealings with other parties.  Any increase in the nonpayment ornonperformance by our customers and/or counterparties and the nonperformance byour suppliers could reduce our ability to make distributions to ourunitholders.

 

Additionally, our access to trade credit support could becomediminished and/or more expensive.  Ourability to continue to receive sufficient trade credit on commerciallyacceptable terms could be adversely affected by fluctuations in refinedpetroleum product prices, disruptions in the credit markets and for any otherreason.

 

***We may not be able to obtain funding onacceptable terms or obtain additional requested funding in excess of totalcommitments under our Credit Agreement because of the deterioration of thecredit and capital markets, which could have a material adverse effect on ourresults of operations.***

 

Global financial markets and economic conditions have been, andcontinue to be, disrupted and volatile. The debt and equity capital markets have been exceedinglydistressed.  These issues, along withsignificant write-offs in the financial services sector, the re-pricing ofcredit risk and the current weak economic conditions have made, and will likelycontinue to make, it difficult to obtain funding.

 

In particular, the cost of raising money in the debt and equity capitalmarkets has increased substantially while the availability of funds from thosemarkets has diminished significantly. Also, as a result of concern about the stability of financial marketsgenerally and the solvency of counterparties specifically, the cost ofobtaining money from the credit markets has increased as many lenders andinstitutional investors have increased interest rates, enacted tighter lendingstandards and reduced and, in some cases, ceased to provide funding to borrowers.

 

In addition, we may be unable to obtain adequate funding under ourcurrent Credit Agreement because (i) one or more of our lenders may beunable to meet its funding obligations or (ii) our borrowing base underour current Credit Agreement is redetermined monthly and may decrease as aresult of price fluctuations, counterparty risk and customer nonpayment ornonperformance.

 

Due to these factors, we cannot be certain that funding will beavailable if needed and to the extent required or requested on acceptableterms.  If funding is not available whenneeded, or is available only on unfavorable terms, we may be unable to maintainour core business as currently conducted, enhance our existing business,complete acquisitions or otherwise take advantage of business opportunities orrespond to competitive pressures, any of which could have a material adverseeffect on our results of operations.

 

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**Item 6.       Exhibits**

 
| 3.1        |   | — |   | Second  Amended and Restated Agreement of Limited Partnership of Global Partners LP  dated as of May 9, 2007 (incorporated herein by reference to  Exhibit 3.1 to the Current Report on Form 8-K filed on May 10,  2007).                                                                                                                                                                                                                                                                                                                              |
|------------|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.2        |   | — |   | Amendment  No. 1 to the Second Amended and Restated Agreement of Limited  Partnership of Global Partners LP dated April 14, 2008 (incorporated  herein by reference to Exhibit 3.1 to the Current Report on  Form 8-K filed on April 17, 2008).                                                                                                                                                                                                                                                                                                   |
|       |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| 10.1       |   | — |   | Ninth  Amendment to Credit Agreement, dated as of July 18, 2008, among Global  Operating LLC, Global Companies LLC, Global Montello Group Corp.,  Glen Hes Corp. and Chelsea Sandwich LLC, as borrowers, Global  Partners LP and Global GP LLC, as guarantors, each lender from  time to time party thereto, and Bank of America, N.A., as Administrative  Agent and L/C Issuer (incorporated herein by reference to Exhibit 10.1  to the Current Report on Form 8-K filed on July 21, 2008).                            |
|       |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.2       |   | — |   | Tenth  Amendment to Credit Agreement and Limited Waiver, dated as of  September 26, 2008, among Global Operating LLC, Global  Companies LLC, Global Montello Group Corp., Glen Hes Corp. and Chelsea  Sandwich LLC, as borrowers, Global Partners LP and Global GP LLC,  as guarantors, each lender from time to time party thereto, and Bank of  America, N.A., as Administrative Agent and L/C Issuer (incorporated herein by  reference to Exhibit 10.1 to the Current Report on Form 8-K filed  on October 1, 2008). |
|       |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 31.1       |   | — |   | Rule 13a-14(a)/15d-14(a) Certification  of Principal Executive Officer of Global GP LLC, general partner of Global  Partners LP.                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 31.2       |   | — |   | Rule 13a-14(a)/15d-14(a) Certification  of Principal Financial Officer of Global GP LLC, general partner of Global  Partners LP.                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 32.1† |   | — |   | Section 1350  Certification of Chief Executive Officer of Global GP LLC, general  partner of Global Partners LP.                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|       |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 32.2† |   | — |   | Section 1350  Certification of Chief Financial Officer of Global GP LLC, general  partner of Global Partners LP.                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

----

**†****                    **Not deemed “filed” for purposes of Section 18 of the SecuritiesExchange Act of 1934 or otherwise subject to the liability of that section.

 

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**SIGNATURES**

 

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

 

 
|                                | **GLOBAL PARTNERS LP** |
|-------------------------------------|------------------------|
|                                | By:                    | Global GP LLC, |
|                                |                   | its general partner |
|                                |                   |   |
|                                |                   |   |
| Dated:   November 7, 2008 |                   | By: | /s/ Eric Slifka |
|                                |                   |   | Eric Slifka |
|                                |                   |   | President and Chief Executive Officer |
|                                |                   |   | (Principal Executive Officer) |
|                                |                   |   |
|                                |                   |   |
| Dated:   November 7, 2008 |                   | By: | /s/ Thomas J. Hollister |
|                                |                   |   | Thomas J. Hollister |
|                                |                   |   | Chief Operating Officer and Chief Financial  Officer |
|                                |                   |   | (Principal Financial Officer) |

 

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**INDEX TO EXHIBITS**

 
| **Exhibit  Number** | ** ** | ** ** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|---------------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.1                 |       | —     |       | Second  Amended and Restated Agreement of Limited Partnership of Global Partners LP  dated as of May 9, 2007 (incorporated herein by reference to  Exhibit 3.1 to the Current Report on Form 8-K filed on May 10,  2007).                                                                                                                                                                                                                                                                                                                              |
|                |       |       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.2                 |       | —     |       | Amendment  No. 1 to the Second Amended and Restated Agreement of Limited  Partnership of Global Partners LP dated April 14, 2008 (incorporated  herein by reference to Exhibit 3.1 to the Current Report on  Form 8-K filed on April 17, 2008).                                                                                                                                                                                                                                                                                                   |
|                |       |       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.1                |       | —     |       | Ninth  Amendment to Credit Agreement, dated as of July 18, 2008, among Global  Operating LLC, Global Companies LLC, Global Montello Group Corp.,  Glen Hes Corp. and Chelsea Sandwich LLC, as borrowers, Global  Partners LP and Global GP LLC, as guarantors, each lender from  time to time party thereto, and Bank of America, N.A., as Administrative  Agent and L/C Issuer (incorporated herein by reference to Exhibit 10.1  to the Current Report on Form 8-K filed on July 21, 2008).                            |
|                |       |       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.2                |       | —     |       | Tenth  Amendment to Credit Agreement and Limited Waiver, dated as of  September 26, 2008, among Global Operating LLC, Global  Companies LLC, Global Montello Group Corp., Glen Hes Corp. and Chelsea  Sandwich LLC, as borrowers, Global Partners LP and Global GP LLC,  as guarantors, each lender from time to time party thereto, and Bank of  America, N.A., as Administrative Agent and L/C Issuer (incorporated herein by  reference to Exhibit 10.1 to the Current Report on Form 8-K filed  on October 1, 2008). |
|                |       |       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 31.1                |       | —     |       | Rule 13a-14(a)/15d-14(a) Certification  of Principal Executive Officer of Global GP LLC, general partner of Global  Partners LP.                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                |       |       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 31.2                |       | —     |       | Rule 13a-14(a)/15d-14(a) Certification  of Principal Financial Officer of Global GP LLC, general partner of Global  Partners LP.                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                |       |       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 32.1†          |       | —     |       | Section 1350  Certification of Chief Executive Officer of Global GP LLC, general  partner of Global Partners LP.                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                |       |       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 32.2†          |       | —     |       | Section 1350  Certification of Chief Financial Officer of Global GP LLC, general  partner of Global Partners LP.                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

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**†****                    **Not deemed “filed” for purposes of Section 18 of the SecuritiesExchange Act of 1934 or otherwise subject to the liability of that section.

 

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