Segment Reporting

3 Months Ended

Mar. 31, 2015

Segment Reporting

Segment Reporting

Note 9.Segment Reporting

The Partnership engages in the purchasing, selling and logistics of transporting petroleum and related products, including domestic and Canadian crude oil, gasoline and gasoline blendstocks (such as ethanol and naphtha), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, natural gas and propane.  The Partnership also receives revenue from convenience store sales and gasoline station rental income.  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, GDSO 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, 2015 and 2014, 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, 2014.

In the Wholesale reporting segment, the Partnership sells branded and unbranded gasoline and gasoline blendstocks and diesel to branded and unbranded gasoline customers and other resellers of transportation fuels.  The Partnership aggregates crude oil by truck or pipeline in the mid-continent region of the United States and Canada, transports it by train and ships it by barge to refiners on the East and West Coasts.  The Partnership sells home heating oil, diesel, kerosene, residual oil and propane to home heating oil and propane retailers and wholesale distributors.  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.  Additionally, ethanol is shipped primarily by rail and by barge.

In the GDSO reporting segment, gasoline distribution includes sales of branded and unbranded gasoline to gasoline station operators and sub-jobbers.  Station operations include convenience stores, rental income from gasoline stations leased to dealers or commissioned agents and sundry (car wash sales, lottery and ATM commissions).  The results of Warren, acquired in January 2015 (see Note 2), are included in the GDSO segment.

In the Commercial segment, the Partnership 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, bunker fuel and natural gas.  In the case of public sector commercial and industrial end user customers, the Partnership sells products primarily either through a competitive bidding process or through contracts of various terms.  The Partnership generally arranges for the delivery of the product to the customer’s designated location, and the Partnership responds to publicly-issued requests for product proposals and quotes.  The Commercial segment also includes sales of custom blended fuels delivered by barges or from a terminal dock to ships through bunkering activity.

The Partnership evaluates segment performance based on 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.

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

	Three Months Ended
	March 31,
	2015			2014
Wholesale Segment:
Sales
Gasoline and gasoline blendstocks	$	776,143		$	1,994,556
Crude oil (1)	252,110			591,229
Other oils and related products (2)	943,693			1,412,771
Total	$	1,971,946		$	3,998,556
Product margin
Gasoline and gasoline blendstocks	$	29,829		$	49,663
Crude oil (1)	15,257			23,490
Other oils and related products (2)	35,007			34,616
Total	$	80,093		$	107,769
Gasoline Distribution and Station Operations Segment (3):
Sales
Gasoline	$	697,334		$	768,904
Station operations (4)	83,075			33,972
Total	$	780,409		$	802,876
Product margin
Gasoline	$	61,699		$	33,280
Station operations (4)(5)	36,723			19,797
Total	$	98,422		$	53,077
Commercial Segment:
Sales	$	226,761		$	315,496
Product margin	$	11,558		$	12,329
Combined sales and product margin:
Sales	$	2,979,116		$	5,116,928
Product margin (6)	$	190,073		$	173,175
Depreciation allocated to cost of sales	(21,515		)	(14,151		)
Combined gross profit	$	168,558		$	159,024

(1) Crude oil consists of the Partnership’s crude oil sales and revenue from its logistics activities.

(2) Other oils and related products primarily consist of distillates, residual oil and propane.

(3) For the three months ended March 31, 2015, the GDSO segment includes the January 2015 acquisition of Warren (see Note 2).  As the Warren assets were not in place prior to January 2015, the above results are not directly comparable to the prior period.

(4) Station operations primarily consist of convenience stores sales at the Partnership’s directly operated stores and rental income from gasoline stations leased to dealers or commissioned agents.

(5) For the three months ended March 31, 2014, station operations includes the reclass of loss on asset sales from product margin to operating expenses to conform to the Partnership’s current presentation.

(6) Product margin is a non-GAAP financial measure used by management and external users of our consolidated financial statements to assess our business.  The table above includes a reconciliation of 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,
	2015			2014
Combined gross profit	$	168,558		$	159,024
Operating costs and expenses not allocated to operating segments:
Selling, general and administrative expenses	48,786			37,298
Operating expenses	68,656			47,952
Amortization expense	5,341			4,528
Loss on asset sales	437			663
Total operating costs and expenses	123,220			90,441
Operating income	45,338			68,583
Interest expense	(13,963		)	(11,107		)
Income tax expense	(966		)	(322		)
Net income	30,409			57,154
Net (income) loss attributable to noncontrolling interest	6			(144		)
Net income attributable to Global Partners LP	$	30,415		$	57,010

The Partnership’s foreign assets and foreign sales were immaterial as of and for the three months ended March 31, 2015 and 2014.

Segment Assets

The Partnership acquired retail gasoline stations from Warren in January 2015, Alliance in March 2012 and ExxonMobil in September 2010 which have been allocated to the GDSO segment.  The Partnership acquired the Revere Terminal in January 2015 and transloading facilities and other assets from Basin Transload and Cascade Kelly Holdings LLC (“Cascade Kelly”) in February 2013 which have been allocated to the Wholesale segment.

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.

The table below presents total assets by reportable segment at March 31, 2015 and December 31, 2014 (in thousands):

	Wholesale		Commercial		GDSO		Unallocated		Total
March 31, 2015	$	773,803	$	—	$	1,184,978	$	610,003	$	2,568,784
December 31, 2014	$	811,535	$	—	$	622,860	$	605,582	$	2,039,977

The increase in total GDSO and total consolidated assets at March 31, 2015 compared to December 31, 2014 is due to the January 2015 acquisitions of Warren and the Revere Terminal (Note 2).