Sprague Resources LP - 10-K filing on 2017-03-10

Business Combinations

12 Months Ended

Dec. 31, 2016



2.	Business Combinations

Acquisition of Natural Gas Business of Santa Buckley Energy, Inc.

On February 1, 2016, the Partnership purchased the natural gas business of Santa Buckley Energy, Inc. (“SBE”) for $17.5 million, not including the purchase of natural gas inventory, utility security deposits, and other adjustments. Total consideration at closing was $29.1 million. SBE markets natural gas to commercial, industrial and municipal consumers in the Northeast United States. The acquisition was accounted for as a business combination and was financed with borrowings under the Partnership’s credit facility. The operations of SBE are included in the Partnership's natural gas segment since the acquisition date. The Partnership recognized less than $0.1 million of acquisition related costs that were expensed and are included in selling, general and administrative expense.

The following table summarizes the fair values of the assets acquired and liabilities assumed:



Derivative assets	$	22,678
Other current assets and prepaids	2,168
Intangibles and other	6,539
Natural gas transportation assets	8,040
Total identifiable assets acquired	39,425
Accrued liabilities	(219		)
Derivative liabilities	(15,007		)
Natural gas transportation liabilities	(2,396		)
Total liabilities assumed	(17,622		)
Net identifiable assets acquired	21,803
Goodwill	7,262
Net assets acquired	$	29,065

The Partnership determined the fair value of intangible assets using income approaches that incorporated projected cash flows as well as excess earnings and lost profits methods. The Partnership determined the fair value of derivative assets, derivative liabilities and natural gas transportation assets and liabilities by applying the Partnership’s existing valuation methodologies. The Partnership’s analysis of fair value factors indicated that for substantially all other assets and liabilities that book value approximated fair value.

The goodwill recognized is primarily attributable to SBE’s reputation in the Northeast United States and the residual cash flow the Partnership believes that it will be able to generate. The goodwill is expected to be deductible for tax purposes.

Acquisition of Kildair

The Predecessor purchased a 50% equity interest of Kildair Services Ltd. ("Kildair") in 2007 and on October 1, 2012 acquired control of Kildair by purchasing the remaining 50% equity interest. Kildair owns a terminal in Sorel-Tracy, Quebec, on the St. Lawrence River where it maintains 3.3 million barrels of residual fuel, asphalt, and crude oil storage. Kildair’s primary businesses include marketing of residual fuel both locally and for export, marketing of asphalt including polymer modified grades, and crude-by-rail handling services. Kildair’s terminal has blending infrastructure allowing the ability to process a wide range of varying quality blend components.

Between October 1, 2012 and October 29, 2013 (“IPO date”) the assets, liabilities and results of operations of Kildair were consolidated into the Predecessor’s consolidated financial statements. Kildair was not included in the Partnership’s Consolidated and Combined Financial Statements subsequent to the IPO date, at which time Kildair was distributed to an affiliate of the Parent.

On December 9, 2014, the Partnership indirectly acquired all of the equity interests in Kildair through the Partnership's acquisition of all of the equity interest of Kildair’s parent, Sprague Canadian Properties LLC, from Axel Johnson for total consideration of $175.0 million (a portion of which was used to retire outstanding Kildair debt at the date of acquisition), which included $10.0 million in the Partnership's common units. As the acquisition of Kildair by the Partnership represents a transfer of entities under common control, the Combined and Consolidated Financial Statements and related information presented herein have been presented to include the historical financial results of Kildair for all periods that were controlled by Axel Johnson. The limited partners' interest in net income (loss) as well as the related per unit amounts have not been recast. The Partnership recognized $1.7 million of acquisition related costs that were expensed in 2014 and are included in selling, general and administrative expense.

Acquisition of Castle Oil

On December 8, 2014, the Partnership acquired substantially all of the assets of Castle Oil (“Castle”) and certain of its affiliates by purchasing Castle’s Bronx, New York terminal and its associated wholesale, commercial, and retail fuel distribution business. The fair value of the consideration consisted of cash of $45.7 million, an obligation to pay $5.0 million over a three year period (net present value of $4.6 million) and $5.3 million in unregistered common units, plus payments for Castle’s inventory and other current assets of $37.0 million. Castle’s Bronx terminal is a large deep water petroleum products terminal located in New York City and has 0.9 million barrels of storage capacity. The purchase of this facility augments the Partnership’s supply, storage and marketing opportunities and provides new opportunities in refined fuels, and expanded materials handling capabilities. The acquisition was accounted for as a business combination and was financed with borrowings under the Partnership’s credit facility. The Partnership recognized $1.1 million of acquisition related costs that were expensed in 2014 and are included in selling, general and administrative expense.

Acquisition of Metromedia Gas & Power, Inc.

On October 1, 2014, the Partnership completed its purchase of Metromedia Gas & Power Inc. (“Metromedia Energy”) for $22.0 million, not including the purchase of natural gas inventory, utility security deposits, and other adjustments. Total consideration at closing was $32.8 million. Metromedia Energy markets natural gas and brokers electricity to commercial, industrial and municipal consumers primarily in the Northeast and Mid-Atlantic United States. The acquisition was accounted for as a business combination and was financed with borrowings under the Partnership’s credit facility. The Partnership recognized $0.1 million of acquisition related costs that were expensed in 2014 and are included in selling, general and administrative expense.