Segment Reporting

3 Months Ended

Mar. 31, 2013

Segment Reporting

Segment Reporting

Note 9. Segment Reporting

The Partnership engages in the distribution of refined petroleum products, renewable fuels, crude oil and natural gas.  The Partnership’s operating segments are based upon the revenue sources for which discrete financial information is reviewed by the chief operating decision maker (the “CODM”) and include Wholesale, Gasoline Distribution and Station Operations and Commercial.  Each of these operating segments generates revenues and incurs expenses and is evaluated for operating performance on a regular basis.

These operating segments are also the Partnership’s reporting segments based on the way the CODM manages the business and on the similarity of customers and expected long-term financial performance of each segment.  For the three months ended March 31, 2013 and 2012, the Commercial operating segment did not meet the quantitative metrics for disclosure as a reportable segment on a stand-alone basis as defined in accounting guidance related to segment reporting.  However, the Partnership has elected to present segment disclosures for the Commercial operating segment as management believes such disclosures are meaningful to the user of the Partnership’s financial information.  The accounting policies of the segments are the same as those described in Note 2, “Summary of Significant Accounting Policies,” in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2012.

In the Wholesale reporting segment, the Partnership sells unbranded gasoline (including gasoline blendstocks such as ethanol and naphtha) and diesel to unbranded gasoline customers and other resellers of transportation fuels.  The Partnership sells home heating oil, diesel, kerosene and residual oil to home heating oil retailers and wholesale distributors.  The Partnership also sells and transports crude oil to refiners.  Generally, customers use their own vehicles or contract carriers to take delivery of the gasoline and distillate products at bulk terminals and inland storage facilities that the Partnership owns or controls or with which it has throughput or exchange arrangements.  Crude oil is aggregated by truck or pipeline in the mid-continent, transported on land by train and shipped to refineries on the East Coast and West Coast in barges.  Additionally, ethanol is shipped primarily by rail and by barge.  The results of Basin Transload and Cascade Kelly, both acquired in February 2013 (see Note 2), are included in the Wholesale segment.

In the Gasoline Distribution and Station Operations reporting segment, the Partnership sells branded and unbranded gasoline to gasoline stations and other sub-jobbers.  This segment also includes gasoline, convenience store, car wash and other ancillary sales at the Partnership’s directly operated stores, as well as rental income from dealer leased or commission agent leased gasoline stations.

The Commercial segment includes sales and deliveries to end user customers in the public sector and to large commercial and industrial end users of unbranded gasoline, home heating oil, diesel, kerosene, residual oil, renewable fuels and natural gas.  In the case of commercial and industrial end user customers, the Partnership sells products primarily either through a competitive bidding process or through contracts of various terms.  The Commercial segment also includes sales of custom blended fuels delivered by barges or from a terminal dock to ships through bunkering activity.

Commercial segment end user customers include federal and state agencies, municipalities, large industrial companies, many autonomous authorities such as transportation authorities and water resource authorities, colleges and universities and a group of small utilities.  In the Commercial segment, the Partnership generally arranges the delivery of the product to the customer’s designated location.  The Partnership typically hires third-party common carriers to deliver the product.

The Partnership evaluates segment performance based on net product margins before allocations of corporate and indirect operating costs, depreciation, amortization (including non-cash charges) and interest.  Based on the way the CODM manages the business, it is not reasonably possible for the Partnership to allocate the components of operating costs and expenses among the reportable segments.  There were no intersegment sales for any of the years presented below.

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

	Three Months Ended
	March 31,
	2013		2012
Wholesale Segment:
Sales
Gasoline and gasoline blendstocks	$	2,201,469	$	1,851,985
Other oils and related products (1)	2,316,519		1,428,323
Total	$	4,517,988	$	3,280,308
Net product margin
Gasoline and gasoline blendstocks	$	9,613	$	18,739
Other oils and related products (1)	41,567		14,453
Total	$	51,180	$	33,192
Gasoline Distribution and Station Operations Segment:
Sales
Gasoline	$	745,590	$	466,477
Station operations (2)	31,608		19,641
Total	$	777,198	$	486,118
Net product margin
Gasoline	$	28,193	$	12,203
Station operations (2)	17,836		10,960
Total	$	46,029	$	23,163
Commercial Segment:
Sales	$	294,004	$	209,055
Net product margin	$	10,425	$	6,200
Combined sales and net product margin:
Sales	$	5,589,190	$	3,975,481
Net product margin (3)	$	107,634	$	62,555
Depreciation allocated to cost of sales	11,782		7,236
Combined gross profit	$	95,852	$	55,319

(1) Other oils and related products primarily consist of distillates, residual oil and crude oil and include the February 2013 acquisitions of Basin Transload and Cascade Kelly (see Note 2).

(2) Station operations primarily consist of convenience store sales at the Partnership’s directly operated stores and rental income from dealer leased or commission agent leased gasoline stations.

(3) Net product margin is a non-GAAP financial measure used by management and external users of the Partnership’s consolidated financial statements to assess the Partnership’s business.  The table above includes a reconciliation of net product margin on a combined basis to gross profit, a directly comparable GAAP measure.

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

	Three Months Ended
	March 31,
	2013			2012
Combined gross profit	$	95,852		$	55,319
Operating costs and expenses not allocated to operating segments:
Selling, general and administrative expenses	26,760			22,467
Operating expenses	43,340			23,358
Amortization expense	4,376			1,574
Total operating costs and expenses	74,476			47,399
Operating income	21,376			7,920
Interest expense	(8,916		)	(9,320		)
Income tax benefit	1,875			—
Net income (loss)	14,335			(1,400		)
Net loss attributable to noncontrolling interest	490			—
Net income (loss) attributable to Global Partners LP	$	14,825		$	(1,400	)

There were no foreign sales for the three months ended March 31, 2013 and 2012.  The Partnership has no foreign assets.

Segment Assets

In connection with its acquisition of Cascade Kelly in February 2013, the Partnership acquired assets of approximately $97.1 million, of which approximately $45.1 million of property and equipment has primarily been allocated to the Wholesale segment as of the acquisition date.  As of March 31, 2013, these assets had a net book value of approximately $44.5 million.

In connection with its acquisition of a 60% membership interest in Basin Transload in February 2013, the Partnership acquired assets of approximately $132.4 million, of which approximately $28.0 million of property and equipment has primarily been allocated to the Wholesale segment as of the acquisition date.  As of March 31, 2013, these assets had a net book value of approximately $27.2 million.

In connection with its acquisitions of retail gasoline stations from Alliance in March 2012 and ExxonMobil in September 2010, the Partnership acquired assets of approximately $627.6 million, of which approximately $465.8 million of property and equipment has been allocated to the Gasoline Distribution and Station Operations segment as of the respective acquisition date.  As of March 31, 2013, these assets had a collective net book value of approximately $504.1 million.

Due to the commingled nature and uses of the remainder of the Partnership’s assets, it is not reasonably possible for the Partnership to allocate these assets among its reportable segments.