Note 20. Segment Reporting

The Partnership engages 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 also receives revenue from convenience store sales, rental income and sundries. The Partnership’s three operating segments are based upon the revenue sources for which discrete financial information is reviewed by the chief operating decision maker (the “CODM”) to make key operating decisions and assess performance and include Wholesale, GDSO and Commercial.

These operating segments are also the Partnership’s reporting segments. Prior to 2018, the Commercial operating segment has not met 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 helpful 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 Wholesale reporting segment, the Partnership sells branded and unbranded gasoline and gasoline blendstocks and diesel to wholesale distributors. The Partnership transports these products by railcars, barges and/or pipelines pursuant to spot or long‑term contracts. From time to time, the Partnership aggregates crude oil by truck or pipeline in the mid-continent region of the United States and Canada, transports it by rail and ships it by barge to refiners. The Partnership sells home heating oil, branded and unbranded gasoline and gasoline blendstocks, 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, distillates and propane at bulk terminals and inland storage facilities that the Partnership owns or controls or at which it has throughput or exchange arrangements. 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 (i) convenience stores, (ii) rental income from gasoline stations leased to dealers, from commissioned agents and from cobranding arrangements and (iii) sundries (such as car wash sales and lottery and ATM commissions).

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 and bunker fuel. 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.

An important measure used by the Partnership and the CODM to evaluate segment performance is product margin, which the Partnership defines as product sales minus product costs. Based on the way the business is managed, components of indirect operating costs and corporate expenses are not allocated to the reportable segments.

Summarized financial information for the Partnership’s reportable segments for the years ended December 31 is presented in the table below (in thousands):


	2018		2017		2016
Wholesale Segment:
Sales
Gasoline and gasoline blendstocks	$	4,732,028	$	2,097,811	$	2,026,315
Crude oil (1)		109,719		464,234		546,541
Other oils and related products (2)		2,049,043		1,725,537		1,534,165
Total	$	6,890,790	$	4,287,582	$	4,107,021
Product margin
Gasoline and gasoline blendstocks	$	76,741	$	82,124	$	83,742
Crude oil (1)		7,159		7,279		(13,098)
Other oils and related products (2)		53,389		62,799		74,271
Total	$	137,289	$	152,202	$	144,915
Gasoline Distribution and Station Operations Segment:
Sales
Gasoline	$	4,081,498	$	3,434,581	$	3,071,517
Station operations (3)		427,211		351,876		371,661
Total	$	4,508,709	$	3,786,457	$	3,443,178
Product margin
Gasoline	$	373,303	$	326,536	$	289,420
Station operations (3)		203,098		174,986		183,708
Total	$	576,401	$	501,522	$	473,128
Commercial Segment:
Sales	$	1,273,103	$	846,513	$	689,440
Product margin	$	23,611	$	17,858	$	24,018
Combined sales and Product margin:
Sales	$	12,672,602	$	8,920,552	$	8,239,639
Product margin (4)	$	737,301	$	671,582	$	642,061
Depreciation allocated to cost of sales		(86,892)		(88,530)		(95,571)
Combined gross profit	$	650,409	$	583,052	$	546,490

(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)

Station operations consist of convenience store sales, rental income and sundries.

(4)

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

Approximately 500 million gallons, 480 million gallons and 500 million gallons of the GDSO segment’s sales for the years ended December 31, 2018, 2017 and 2016, respectively, were supplied from petroleum products and renewable fuels sourced by the Wholesale segment. Except for natural gas (prior to the sale of the Partnership’s natural gas marketing and electricity brokerage businesses in February 2017), predominantly all of the Commercial segment’s sales were sourced by the Wholesale segment. These intra-segment sales are not reflected as sales in the Wholesale segment as they are eliminated.

None of the Partnership’s customers accounted for greater than 10% of total sales for years ended December 31, 2018, 2017 and 2016.

A reconciliation of the totals reported for the reportable segments to the applicable line items in the consolidated financial statements for the years ended December 31 is as follows (in thousands):


	2018		2017		2016
Combined gross profit	$	650,409	$	583,052	$	546,490
Operating costs and expenses not allocated to operating segments:
Selling, general and administrative expenses		171,002		155,033		149,673
Operating expenses		321,115		283,650		288,547
(Gain) loss on trustee taxes		(52,627)		16,194		—
Lease exit and termination (gain) expenses		(3,506)		—		80,665
Amortization expense		10,960		9,206		9,389
Net loss (gain) on sale and disposition of assets		5,880		(1,624)		20,495
Goodwill and long-lived asset impairment		414		809		149,972
Total operating costs and expenses		453,238		463,268		698,741
Operating income (loss)		197,171		119,784		(152,251)
Interest expense		(89,145)		(86,230)		(86,319)
Income tax (expense) benefit		(5,623)		23,563		(53)
Net income (loss)		102,403		57,117		(238,623)
Net loss attributable to noncontrolling interest		1,502		1,635		39,211
Net income (loss) attributable to Global Partners LP	$	103,905	$	58,752	$	(199,412)

The Partnership’s foreign assets and foreign sales were immaterial as of and for the years ended December 31, 2018, 2017 and 2016.

Segment Assets

The Partnership’s terminal assets are allocated to the Wholesale and Commercial segments, and its retail gasoline stations are allocated to the GDSO 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 December 31, (in thousands):


		Wholesale		Commercial		GDSO		Unallocated		Total
December 31, 2018	$	615,795	$	—	$	1,415,501	$	392,995	$	2,424,291
December 31, 2017	$	613,764	$	100	$	1,281,370	$	424,935	$	2,320,169