Note 1. Organization and Basis of Presentation

Organization

Global Partners LP (the “Partnership”) is a midstream logistics and marketing master limited partnership formed in March 2005 engaged in the purchasing, selling, gathering, blending, storing and logistics of transporting petroleum and related products, including gasoline and gasoline blendstocks (such as ethanol), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, crude oil and propane. The Partnership owns, controls or has access to one of the largest terminal networks of refined petroleum products and renewable fuels in Massachusetts, Maine, Connecticut, Vermont, New Hampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively, the “Northeast”). The Partnership is one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York. The Partnership is also one of the largest independent owners, suppliers and operators of gasoline stations and convenience stores with locations throughout the New England states and New York. As of September 30, 2018, the Partnership had a portfolio of 1,589 owned, leased and/or supplied gasoline stations, including 301 directly operated convenience stores, primarily in the Northeast, Maryland and Virginia. The Partnership also receives revenue from convenience store sales, rental income and sundries. In addition, the Partnership owns transload and storage terminals in North Dakota and Oregon that extend its origin-to-destination capabilities from the mid-continent region of the United States and Canada.

Global GP LLC, the Partnership’s general partner (the “General Partner”), manages the Partnership’s operations and activities and employs its officers and substantially all of its personnel, except for most of its gasoline station and convenience store employees who are employed by Global Montello Group Corp. (“GMG”), a wholly owned subsidiary of the Partnership.

The General Partner, which holds a 0.67% general partner interest in the Partnership, is owned by affiliates of the Slifka family. As of September 30, 2018, affiliates of the General Partner, including its directors and executive officers and their affiliates, owned 7,347,370 common units, representing a 21.6% limited partner interest.

Recent Transactions

Series A Preferred Unit Offering—On August 7, 2018, the Partnership issued 2,760,000 9.75% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units, liquidation preference of $25.00 per unit (the “Series A Preferred Units”), for $25.00 per Series A Preferred Unit in an offering registered under the Securities Act of 1933. See Note 14.

Acquisition from Cheshire Oil Company, LLC—On July 24, 2018, the Partnership acquired the assets of company-operated gasoline stations and convenience stores from New Hampshire-based Cheshire Oil Company, LLC (“Cheshire”). See Note 17.

Acquisition from Champlain Oil Company, Inc.—On July 17, 2018, the Partnership acquired retail fuel and convenience store assets from Vermont-based Champlain Oil Company, Inc. (“Champlain). See Note 17.

Basis of Presentation

The financial results of Cheshire and Champlain since the respective acquisition date are included in the accompanying statements of operations for the three and nine months ended September 30, 2018. The accompanying consolidated financial statements as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017 reflect the accounts of the Partnership. Upon consolidation, all intercompany balances and transactions have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition and operating results for the interim periods. The interim financial information, which has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), should be read in conjunction with the consolidated financial statements for the year ended December 31, 2017 and notes thereto contained in the Partnership’s Annual Report on Form 10-K. The significant accounting policies described in Note 2, “Summary of Significant Accounting Policies,” of such Annual Report on Form 10-K are the same used in preparing the accompanying consolidated financial statements, except as described below for trustee taxes and in Note 2 herein for the adoption of Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” including modifications to that standard thereafter, and now codified as Accounting Standards Codification 606 (“ASC 606”) which the Partnership adopted on January 1, 2018 (see Note 22, New Accounting Standards—“Accounting Standards or Updates Recently Adopted” for additional information).

The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results of operations that will be realized for the entire year ending December 31, 2018. The consolidated balance sheet at December 31, 2017 has been derived from the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017.

Trustee Taxes

The Partnership collects trustee taxes, which consist of various pass through taxes collected on behalf of taxing authorities, and remits such taxes directly to those taxing authorities. Examples of trustee taxes include, among other things, motor fuel excise tax and sales and use tax. As such, it is the Partnership’s policy to exclude trustee taxes from revenues and cost of sales and account for them as current liabilities.

Volumetric Ethanol Excise Tax Credit—In the first quarter of 2018, the Partnership recognized a one-time income item of approximately $52.6 million as a result of the extinguishment of a contingent liability related to the Volumetric Ethanol Excise Tax Credit, which tax credit program expired in 2011. Based upon the significant passage of time from that 2011 expiration date, including underlying statutes of limitation, as of January 31, 2018 the Partnership determined that the liability was no longer required. The liability had historically been included in trustee taxes in the accompanying consolidated balance sheets. The recognition of this one-time income item, which is included in gain on trustee taxes in the accompanying consolidated statements of operations for the nine months ended September 30, 2018, did not impact cash flows from operations for the nine months ended September 30, 2018 and will not impact cash flows from operations for the year ending December 31, 2018.

Lease Exit and Termination Gain

In December 2016, the Partnership voluntarily terminated early a sublease with a counterparty for 1,610 railcars and, as result, recognized a lease exit and termination expense of $80.7 million for the year ended December 31, 2016. Contemporaneously with the sublease termination, the Partnership entered into to a fleet management services agreement with the counterparty, pursuant to which the Partnership was obligated to provide future railcar storage, freight, cleaning, insurance and other services on behalf of the counterparty associated with all 1,610 railcars. In January 2017, the counterparty paid the Partnership $19.1 million to cover the incremental costs associated with the Partnership’s obligations. The Partnership accrued the incremental costs associated with its obligations at present value based on the estimated timing of when the costs would be incurred in the future. Please read “Summary of Significant Accounting Policies—Leases— Early Termination of Railcar Sublease,” in Note 2 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2017 for additional information.

During the quarter ended September 30, 2018, the Partnership was released from certain of its obligations to provide future railcar storage, freight, insurance and other services for 500 railcars under the fleet management services agreement. The release resulted in a $3.5 million reduction of the remaining accrued incremental costs, which benefit is included in lease exit and termination gain in the accompanying statements of operations for the three and nine months ended September 30, 2018. The remaining accrued incremental costs were $6.6 million at September 30, 2018.

Noncontrolling Interest

The Partnership acquired a 60% interest in Basin Transload, LLC (“Basin Transload”) on February 1, 2013. After evaluating Accounting Standards Codification (“ASC”) Topic 810, “Consolidations,” the Partnership concluded it is appropriate to consolidate the balance sheet and statements of operations of Basin Transload based on an evaluation of the outstanding voting interests. Amounts pertaining to the noncontrolling ownership interest held by third parties in the financial position and operating results of the Partnership are reported as a noncontrolling interest in the accompanying consolidated balance sheets and statements of operations.

Concentration of Risk

Due to the nature of the Partnership’s business and its reliance, in part, on consumer travel and spending patterns, the Partnership may experience more demand for gasoline during the late spring and summer months than during the fall and winter. Travel and recreational activities are typically higher in these months in the geographic areas in which the Partnership operates, increasing the demand for gasoline. Therefore, the Partnership’s volumes in gasoline are typically higher in the second and third quarters of the calendar year. As demand for some of the Partnership’s refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, heating oil and residual oil volumes are generally higher during the first and fourth quarters of the calendar year. These factors may result in fluctuations in the Partnership’s quarterly operating results.

The following table presents the Partnership’s product sales and other revenues as a percentage of the consolidated sales for the periods presented:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Gasoline sales: gasoline and gasoline blendstocks (such as ethanol)	82	%	71	%	75	%	65	%
Crude oil sales and crude oil logistics revenue	—	%	5	%	1	%	6	%
Distillates (home heating oil, diesel and kerosene), residual oil and propane sales	14	%	20	%	21	%	25	%
Convenience store sales, rental income and sundries	4	%	4	%	3	%	4	%
Total	100	%	100	%	100	%	100	%

The following table presents the Partnership’s product margin by segment as a percentage of the consolidated product margin for the periods presented:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Wholesale segment	2	%	21	%	18	%	24	%
Gasoline Distribution and Station Operations segment	95	%	76	%	79	%	73	%
Commercial segment	3	%	3	%	3	%	3	%
Total	100	%	100	%	100	%	100	%

See Note 16, “Segment Reporting,” for additional information on the Partnership’s operating segments.

None of the Partnership’s customers accounted for greater than 10% of total sales for the three and nine months ended September 30, 2018 and 2017.