`
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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|
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017June 30, 2023
OR
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☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-14129
STAR GROUP, L.P.
(Exact nameName of registrantsRegistrant as specifiedSpecified in its charters)Charter)
Delaware | 06-1437793 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
9 West Broad Street Stamford, Connecticut | 06902 |
(Address of principal executive office) | (Zip Code) |
(203) 328-7310
(Registrant’s telephone number, including area code)code: (203) 328-7310
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Units | SGU | New York Stock Exchange | ||
Common Unit Purchase Rights | N/A | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☒ |
Non- accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
At JanuaryJuly 31, 2018,2023, the registrant had 55,887,83235,602,552 Common Units outstanding.outstanding.
STAR GROUP, L.P. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page | ||
Part I Financial Information | ||
3 | ||
3 | ||
4 | ||
5 | ||
| ||
| ||
Notes to Condensed Consolidated Financial Statements (unaudited) |
| |
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
Item 3 - Quantitative and Qualitative Disclosures About Market Risk |
| |
| ||
Part II Other Information: | 40 | |
| ||
| ||
Item 2 - |
| |
40 | ||
40 | ||
40 | ||
| ||
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2
Part I. FINANCIALFINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| December 31, |
|
| September 30, |
|
| June 30, |
|
| September 30, |
| ||||
|
| 2017 |
|
| 2017 |
|
| 2023 |
|
| 2022 |
| ||||
(in thousands) |
| (unaudited) |
|
|
|
|
|
| (unaudited) |
|
|
| ||||
ASSETS | ASSETS |
|
|
|
|
| ASSETS |
|
|
|
| |||||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 21,139 |
|
| $ | 52,458 |
|
| $ | 57,146 |
|
| $ | 14,620 |
|
Receivables, net of allowance of $5,919 and $5,540, respectively |
|
| 192,559 |
|
|
| 96,603 |
| ||||||||
Receivables, net of allowance of $12,551 and $7,755, respectively |
|
| 139,301 |
|
|
| 138,252 |
| ||||||||
Inventories |
|
| 71,504 |
|
|
| 59,596 |
|
|
| 53,590 |
|
|
| 83,557 |
|
Fair asset value of derivative instruments |
|
| 19,220 |
|
|
| 5,932 |
|
|
| — |
|
|
| 16,823 |
|
Prepaid expenses and other current assets |
|
| 34,858 |
|
|
| 26,652 |
|
|
| 28,680 |
|
|
| 32,016 |
|
Assets held for sale |
|
| — |
|
|
| 2,995 |
| ||||||||
Total current assets |
|
| 339,280 |
|
|
| 241,241 |
|
|
| 278,717 |
|
|
| 288,263 |
|
Property and equipment, net |
|
| 79,538 |
|
|
| 79,673 |
|
|
| 103,498 |
|
|
| 107,744 |
|
Operating lease right-of-use assets |
|
| 89,840 |
|
|
| 93,435 |
| ||||||||
Goodwill |
|
| 225,978 |
|
|
| 225,915 |
|
|
| 254,354 |
|
|
| 254,110 |
|
Intangibles, net |
|
| 100,643 |
|
|
| 105,218 |
|
|
| 73,272 |
|
|
| 84,510 |
|
Restricted cash |
|
| 250 |
|
|
| 250 |
|
|
| 250 |
|
|
| 250 |
|
Captive insurance collateral (1) |
|
| 45,803 |
|
|
| 11,777 |
| ||||||||
Captive insurance collateral |
|
| 68,351 |
|
|
| 66,662 |
| ||||||||
Deferred charges and other assets, net |
|
| 11,768 |
|
|
| 9,843 |
|
|
| 16,068 |
|
|
| 17,501 |
|
Total assets |
| $ | 803,260 |
|
| $ | 673,917 |
|
| $ | 884,350 |
|
| $ | 912,475 |
|
LIABILITIES AND PARTNERS’ CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts payable |
| $ | 53,259 |
|
| $ | 26,739 |
|
| $ | 29,010 |
|
| $ | 49,061 |
|
Revolving credit facility borrowings |
|
| 79,149 |
|
|
| - |
|
|
| 198 |
|
|
| 20,276 |
|
Fair liability value of derivative instruments |
|
| - |
|
|
| 289 |
|
|
| 10,398 |
|
|
| 183 |
|
Current maturities of long-term debt |
|
| 10,000 |
|
|
| 10,000 |
|
|
| 16,500 |
|
|
| 12,375 |
|
Current portion of operating lease liabilities |
|
| 17,617 |
|
|
| 17,211 |
| ||||||||
Accrued expenses and other current liabilities |
|
| 119,681 |
|
|
| 108,449 |
|
|
| 135,267 |
|
|
| 125,561 |
|
Unearned service contract revenue |
|
| 68,583 |
|
|
| 60,133 |
|
|
| 63,446 |
|
|
| 62,858 |
|
Customer credit balances |
|
| 52,477 |
|
|
| 66,723 |
|
|
| 78,315 |
|
|
| 93,555 |
|
Total current liabilities |
|
| 383,149 |
|
|
| 272,333 |
|
|
| 350,751 |
|
|
| 381,080 |
|
Long-term debt |
|
| 63,278 |
|
|
| 65,717 |
|
|
| 135,394 |
|
|
| 151,709 |
|
Long-term operating lease liabilities |
|
| 77,323 |
|
|
| 81,385 |
| ||||||||
Deferred tax liabilities, net |
|
| 3,535 |
|
|
| 6,140 |
|
|
| 15,731 |
|
|
| 25,620 |
|
Other long-term liabilities |
|
| 23,037 |
|
|
| 23,659 |
|
|
| 16,342 |
|
|
| 14,766 |
|
Partners’ capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Common unitholders |
|
| 349,621 |
|
|
| 325,762 |
|
|
| 307,199 |
|
|
| 277,177 |
|
General partner |
|
| (908 | ) |
|
| (929 | ) |
|
| (4,103 | ) |
|
| (3,656 | ) |
Accumulated other comprehensive loss, net of taxes |
|
| (18,452 | ) |
|
| (18,765 | ) |
|
| (14,287 | ) |
|
| (15,606 | ) |
Total partners’ capital |
|
| 330,261 |
|
|
| 306,068 |
|
|
| 288,809 |
|
|
| 257,915 |
|
Total liabilities and partners’ capital |
| $ | 803,260 |
|
| $ | 673,917 |
|
| $ | 884,350 |
|
| $ | 912,475 |
|
|
|
See accompanying notes to condensed consolidated financial statements.
3
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
| Three Months Ended December 31, |
| Three Months |
|
| Nine Months |
| ||||||||||||||
(in thousands, except per unit data - unaudited) |
| 2017 |
|
| 2016 |
| 2023 |
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Product |
| $ | 366,734 |
|
| $ | 316,291 |
| $ | 223,565 |
| $ | 358,236 |
|
| $ | 1,462,706 |
|
| $ | 1,481,963 |
|
Installations and services |
|
| 70,100 |
|
|
| 67,827 |
|
| 76,556 |
|
| 80,865 |
|
|
| 223,219 |
|
|
| 227,951 |
|
Total sales |
|
| 436,834 |
|
|
| 384,118 |
|
| 300,121 |
| 439,101 |
|
|
| 1,685,925 |
|
|
| 1,709,914 |
| |
Cost and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of product |
|
| 242,780 |
|
|
| 199,593 |
|
| 169,097 |
| 291,236 |
|
|
| 1,054,457 |
|
|
| 1,058,164 |
| |
Cost of installations and services |
|
| 69,555 |
|
|
| 66,487 |
|
| 66,596 |
| 70,560 |
|
|
| 211,450 |
|
|
| 214,744 |
| |
(Increase) decrease in the fair value of derivative instruments |
|
| (11,400 | ) |
|
| (8,551 | ) |
| (1,036 | ) |
| (7,669 | ) |
|
| 19,622 |
|
|
| (11,881 | ) |
Delivery and branch expenses |
|
| 91,204 |
|
|
| 81,133 |
|
| 83,075 |
| 83,914 |
|
|
| 276,953 |
|
|
| 280,389 |
| |
Depreciation and amortization expenses |
|
| 7,741 |
|
|
| 6,561 |
|
| 7,684 |
| 8,067 |
|
|
| 23,147 |
|
|
| 24,596 |
| |
General and administrative expenses |
|
| 6,651 |
|
|
| 6,353 |
|
| 6,065 |
| 6,251 |
|
|
| 19,619 |
|
|
| 18,829 |
| |
Finance charge income |
|
| (763 | ) |
|
| (695 | ) |
| (1,774 | ) |
| (1,762 | ) |
|
| (4,857 | ) |
|
| (3,300 | ) |
Operating income |
|
| 31,066 |
|
|
| 33,237 |
| ||||||||||||||
Operating income (loss) |
| (29,586 | ) |
| (11,496 | ) |
|
| 85,534 |
|
|
| 128,373 |
| ||||||||
Interest expense, net |
|
| (2,087 | ) |
|
| (1,787 | ) |
| (3,365 | ) |
| (2,635 | ) |
|
| (12,602 | ) |
|
| (7,422 | ) |
Amortization of debt issuance costs |
|
| (309 | ) |
|
| (312 | ) |
| (245 | ) |
| (222 | ) |
|
| (832 | ) |
|
| (698 | ) |
Income before income taxes |
|
| 28,670 |
|
|
| 31,138 |
| ||||||||||||||
Income tax (benefit) expense |
|
| (1,512 | ) |
|
| 12,863 |
| ||||||||||||||
Net income |
| $ | 30,182 |
|
| $ | 18,275 |
| ||||||||||||||
General Partner’s interest in net income |
| 175 |
|
|
| 105 |
| |||||||||||||||
Limited Partners’ interest in net income |
| $ | 30,007 |
|
| $ | 18,170 |
| ||||||||||||||
Income (loss) before income taxes |
| (33,196 | ) |
| (14,353 | ) |
|
| 72,100 |
|
|
| 120,253 |
| ||||||||
Income tax expense (benefit) |
| (9,290 | ) |
| (3,766 | ) |
|
| 20,426 |
|
|
| 34,972 |
| ||||||||
Net income (loss) | $ | (23,906 | ) | $ | (10,587 | ) |
| $ | 51,674 |
|
| $ | 85,281 |
| ||||||||
General Partner’s interest in net income (loss) |
| (216 | ) |
| (93 | ) |
|
| 468 |
|
|
| 726 |
| ||||||||
Limited Partners’ interest in net income (loss) | $ | (23,690 | ) | $ | (10,494 | ) |
| $ | 51,206 |
|
| $ | 84,555 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted income per Limited Partner Unit (1): |
| $ | 0.45 |
|
| $ | 0.28 |
| ||||||||||||||
Basic and diluted income (loss) per Limited Partner Unit (1): | $ | (0.67 | ) | $ | (0.29 | ) |
| $ | 1.23 |
|
| $ | 1.88 |
| ||||||||
Weighted average number of Limited Partner units outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic and Diluted |
|
| 55,887 |
|
|
| 55,887 |
|
| 35,603 |
|
| 36,781 |
|
|
| 35,725 |
|
|
| 37,739 |
|
|
|
(1) See Note 15 - Earnings Per Limited Partner Unit.
See accompanying notes to condensed consolidated financial statements.
4
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
| Three Months Ended December 31, |
| |||||
(in thousands - unaudited) |
| 2017 |
|
| 2016 |
| ||
Net income |
| $ | 30,182 |
|
| $ | 18,275 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Unrealized gain on pension plan obligation (1) |
|
| 448 |
|
|
| 534 |
|
Tax effect of unrealized gain on pension plan |
|
| (135 | ) |
|
| (216 | ) |
Total other comprehensive income |
|
| 313 |
|
|
| 318 |
|
Total comprehensive income |
| $ | 30,495 |
|
| $ | 18,593 |
|
|
| Three Months |
|
| Nine Months |
| |||||||||
(in thousands - unaudited) |
| 2023 |
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) |
| $ | (23,906 | ) | $ | (10,587 | ) |
| $ | 51,674 |
|
| $ | 85,281 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
| ||||
Unrealized gain on pension plan obligation |
|
| 382 |
|
| 224 |
|
|
| 1,144 |
|
|
| 672 |
|
Tax effect of unrealized gain on pension plan obligation |
|
| (104 | ) |
| (61 | ) |
|
| (305 | ) |
|
| (167 | ) |
Unrealized gain (loss) on captive insurance collateral |
|
| (50 | ) |
| (812 | ) |
|
| 1,080 |
|
|
| (3,486 | ) |
Tax effect of unrealized gain (loss) on captive insurance collateral |
|
| 11 |
|
| 171 |
|
|
| (227 | ) |
|
| 735 |
|
Unrealized gain (loss) on interest rate hedges |
|
| 571 |
|
| 623 |
|
|
| (510 | ) |
|
| 2,890 |
|
Tax effect of unrealized gain (loss) on interest rate hedges |
|
| (151 | ) |
| (165 | ) |
|
| 137 |
|
|
| (768 | ) |
Total other comprehensive income (loss) |
|
| 659 |
|
| (20 | ) |
|
| 1,319 |
|
|
| (124 | ) |
Total comprehensive income (loss) |
| $ | (23,247 | ) | $ | (10,607 | ) |
| $ | 52,993 |
|
| $ | 85,157 |
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
|
| Number of Units |
|
|
|
|
|
|
|
|
|
| Accum. Other |
|
| Total |
| |||||||
(in thousands - unaudited) |
| Common |
|
| General Partner |
|
| Common |
|
| General Partner |
|
| Comprehensive Income (Loss) |
|
| Partners’ Capital |
| ||||||
Balance as of September 30, 2017 |
|
| 55,887 |
|
|
| 326 |
|
| $ | 325,762 |
|
| $ | (929 | ) |
| $ | (18,765 | ) |
| $ | 306,068 |
|
Net income |
|
| - |
|
|
| - |
|
|
| 30,007 |
|
| 175 |
|
|
| - |
|
|
| 30,182 |
| |
Unrealized gain on pension plan obligation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 448 |
|
|
| 448 |
|
Tax effect of unrealized gain on pension plan |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (135 | ) |
|
| (135 | ) |
Distributions |
|
| - |
|
|
| - |
|
|
| (6,148 | ) |
|
| (154 | ) |
|
| - |
|
|
| (6,302 | ) |
Balance as of December 31, 2017 (unaudited) |
|
| 55,887 |
|
|
| 326 |
|
| $ | 349,621 |
|
| $ | (908 | ) |
| $ | (18,452 | ) |
| $ | 330,261 |
|
|
| Three Months Ended June 30, 2023 |
| |||||||||||||||||||||
|
| Number of Units |
|
|
|
|
|
|
|
| Accum. Other |
|
| Total |
| |||||||||
(in thousands - unaudited) |
| Common |
|
| General |
|
| Common |
|
| General |
|
| Comprehensive |
|
| Partners’ |
| ||||||
Balance as of March 31, 2023 |
|
| 35,603 |
|
|
| 326 |
|
| $ | 336,674 |
|
| $ | (3,553 | ) |
| $ | (14,946 | ) |
| $ | 318,175 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (23,690 | ) |
|
| (216 | ) |
|
| — |
|
|
| (23,906 | ) |
Unrealized gain on pension plan obligation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 382 |
|
|
| 382 |
|
Tax effect of unrealized gain on pension plan obligation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (104 | ) |
|
| (104 | ) |
Unrealized loss on captive insurance collateral |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50 | ) |
|
| (50 | ) |
Tax effect of unrealized loss on captive insurance collateral |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| 11 |
|
Unrealized gain on interest rate hedges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 571 |
|
|
| 571 |
|
Tax effect of unrealized gain on interest rate hedges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (151 | ) |
|
| (151 | ) |
Distributions |
|
| — |
|
|
| — |
|
|
| (5,785 | ) |
|
| (334 | ) |
|
| — |
|
|
| (6,119 | ) |
Balance as of June 30, 2023 (unaudited) |
|
| 35,603 |
|
|
| 326 |
|
| $ | 307,199 |
|
| $ | (4,103 | ) |
| $ | (14,287 | ) |
| $ | 288,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Three Months Ended June 30, 2022 |
| |||||||||||||||||||||
|
| Number of Units |
|
|
|
|
|
|
|
| Accum. Other |
|
| Total |
| |||||||||
(in thousands - unaudited) |
| Common |
|
| General |
|
| Common |
|
| General |
|
| Comprehensive |
|
| Partners’ |
| ||||||
Balance as of March 31, 2022 |
|
| 36,950 |
|
|
| 326 |
|
| $ | 357,020 |
|
| $ | (2,524 | ) |
| $ | (14,142 | ) |
| $ | 340,354 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| (10,494 | ) |
|
| (93 | ) |
|
| — |
|
|
| (10,587 | ) |
Unrealized gain on pension plan obligation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 224 |
|
|
| 224 |
|
Tax effect of unrealized gain on pension plan obligation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (61 | ) |
|
| (61 | ) |
Unrealized loss on captive insurance collateral |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (812 | ) |
|
| (812 | ) |
Tax effect of unrealized loss on captive insurance collateral |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 171 |
|
|
| 171 |
|
Unrealized gain on interest rate hedges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 623 |
|
|
| 623 |
|
Tax effect of unrealized gain on interest rate hedges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (165 | ) |
|
| (165 | ) |
Distributions |
|
| — |
|
|
| — |
|
|
| (5,619 | ) |
|
| (299 | ) |
|
| — |
|
|
| (5,918 | ) |
Retirement of units |
|
| (487 | ) |
|
| — |
|
|
| (5,127 | ) |
|
| — |
|
|
| — |
|
|
| (5,127 | ) |
Balance as of June 30, 2022 (unaudited) |
|
| 36,463 |
|
|
| 326 |
|
| $ | 335,780 |
|
| $ | (2,916 | ) |
| $ | (14,162 | ) |
| $ | 318,702 |
|
See accompanying notes to condensed consolidated financial statements.
6
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWSPARTNERS’ CAPITAL
|
| Three Months Ended December 31, |
| |||||
(in thousands - unaudited) |
| 2017 |
|
| 2016 |
| ||
Cash flows provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 30,182 |
|
| $ | 18,275 |
|
Adjustment to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
(Increase) decrease in fair value of derivative instruments |
|
| (11,400 | ) |
|
| (8,551 | ) |
Depreciation and amortization |
|
| 8,050 |
|
|
| 6,873 |
|
Provision for losses on accounts receivable |
|
| 311 |
|
|
| 31 |
|
Change in deferred taxes |
|
| (2,740 | ) |
|
| 3,941 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in receivables |
|
| (96,193 | ) |
|
| (76,845 | ) |
Increase in inventories |
|
| (11,886 | ) |
|
| (16,248 | ) |
Increase in other assets |
|
| (12,411 | ) |
|
| (3,294 | ) |
Increase in accounts payable |
|
| 27,158 |
|
|
| 21,725 |
|
Decrease in customer credit balances |
|
| (14,294 | ) |
|
| (22,805 | ) |
Increase in other current and long-term liabilities |
|
| 19,987 |
|
|
| 11,392 |
|
Net cash used in operating activities |
|
| (63,236 | ) |
|
| (65,506 | ) |
Cash flows provided by (used in) investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (3,604 | ) |
|
| (4,521 | ) |
Proceeds from sales of fixed assets |
|
| 88 |
|
|
| 34 |
|
Purchase of investments (1) |
|
| (34,151 | ) |
|
| (11,474 | ) |
Acquisitions |
|
| (224 | ) |
|
| (5,835 | ) |
Net cash used in investing activities |
|
| (37,891 | ) |
|
| (21,796 | ) |
Cash flows provided by (used in) financing activities: |
|
|
|
|
|
|
|
|
Revolving credit facility borrowings |
|
| 79,149 |
|
|
| - |
|
Term loan repayment |
|
| (2,500 | ) |
|
| (8,700 | ) |
Distributions |
|
| (6,302 | ) |
|
| (5,860 | ) |
Customer retainage payments |
|
| (539 | ) |
|
| - |
|
Net cash provided by (used in) financing activities |
|
| 69,808 |
|
|
| (14,560 | ) |
Net decrease in cash, cash equivalents, and restricted cash |
|
| (31,319 | ) |
|
| (101,862 | ) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 52,708 |
|
|
| 139,188 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 21,389 |
|
| $ | 37,326 |
|
|
| Nine Months Ended June 30, 2023 |
| |||||||||||||||||||||
|
| Number of Units |
|
|
|
|
|
|
|
| Accum. Other |
|
| Total |
| |||||||||
(in thousands - unaudited) |
| Common |
|
| General |
|
| Common |
|
| General |
|
| Comprehensive |
|
| Partners’ |
| ||||||
Balance as of September 30, 2022 |
|
| 36,092 |
|
|
| 326 |
|
| $ | 277,177 |
|
| $ | (3,656 | ) |
| $ | (15,606 | ) |
| $ | 257,915 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 51,206 |
|
|
| 468 |
|
|
| — |
|
|
| 51,674 |
|
Unrealized gain on pension plan obligation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,144 |
|
|
| 1,144 |
|
Tax effect of unrealized gain on pension plan obligation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (305 | ) |
|
| (305 | ) |
Unrealized gain on captive insurance collateral |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,080 |
|
|
| 1,080 |
|
Tax effect of unrealized gain on captive insurance collateral |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (227 | ) |
|
| (227 | ) |
Unrealized loss on interest rate hedges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (510 | ) |
|
| (510 | ) |
Tax effect of unrealized loss on interest rate hedges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 137 |
|
|
| 137 |
|
Distributions |
|
| — |
|
|
| — |
|
|
| (16,709 | ) |
|
| (915 | ) |
|
| — |
|
|
| (17,624 | ) |
Retirement of units |
|
| (489 | ) |
|
| — |
|
|
| (4,475 | ) |
|
| — |
|
|
| — |
|
|
| (4,475 | ) |
Balance as of June 30, 2023 (unaudited) |
|
| 35,603 |
|
|
| 326 |
|
| $ | 307,199 |
|
| $ | (4,103 | ) |
| $ | (14,287 | ) |
| $ | 288,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Nine Months Ended June 30, 2022 |
| |||||||||||||||||||||
|
| Number of Units |
|
|
|
|
|
|
|
| Accum. Other |
|
| Total |
| |||||||||
(in thousands - unaudited) |
| Common |
|
| General |
|
| Common |
|
| General |
|
| Comprehensive |
|
| Partners’ |
| ||||||
Balance as of September 30, 2021 |
|
| 39,046 |
|
|
| 326 |
|
| $ | 295,063 |
|
| $ | (2,821 | ) |
| $ | (14,038 | ) |
| $ | 278,204 |
|
Net income |
|
| — |
|
|
| — |
|
|
| 84,555 |
|
|
| 726 |
|
|
| — |
|
|
| 85,281 |
|
Unrealized gain on pension plan obligation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 672 |
|
|
| 672 |
|
Tax effect of unrealized gain on pension plan obligation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (167 | ) |
|
| (167 | ) |
Unrealized loss on captive insurance collateral |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,486 | ) |
|
| (3,486 | ) |
Tax effect of unrealized loss on captive insurance collateral |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 735 |
|
|
| 735 |
|
Unrealized gain on interest rate hedges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,890 |
|
|
| 2,890 |
|
Tax effect of unrealized gain on interest rate hedges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (768 | ) |
|
| (768 | ) |
Distributions |
|
| — |
|
|
| — |
|
|
| (16,529 | ) |
|
| (821 | ) |
|
| — |
|
|
| (17,350 | ) |
Retirement of units |
|
| (2,583 | ) |
|
| — |
|
|
| (27,309 | ) |
|
| — |
|
|
| — |
|
|
| (27,309 | ) |
Balance as of June 30, 2022 (unaudited) |
|
| 36,463 |
|
|
| 326 |
|
| $ | 335,780 |
|
| $ | (2,916 | ) |
| $ | (14,162 | ) |
| $ | 318,702 |
|
|
|
See accompanying notes to condensed consolidated financial statements.
7
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| Nine Months |
| |||||
(in thousands - unaudited) |
| 2023 |
|
| 2022 |
| ||
Cash flows provided by (used in) operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 51,674 |
|
| $ | 85,281 |
|
Adjustment to reconcile net income to net cash provided by (used in) |
|
|
|
|
|
| ||
(Increase) decrease in fair value of derivative instruments |
|
| 19,622 |
|
|
| (11,881 | ) |
Depreciation and amortization |
|
| 23,979 |
|
|
| 25,294 |
|
Provision for losses on accounts receivable |
|
| 8,510 |
|
|
| 5,264 |
|
Change in deferred taxes |
|
| (10,284 | ) |
|
| 7,837 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Increase in receivables |
|
| (8,540 | ) |
|
| (92,604 | ) |
Decrease (increase) in inventories |
|
| 29,751 |
|
|
| (19,972 | ) |
Decrease (increase) in other assets |
|
| 16,804 |
|
|
| (5,814 | ) |
(Decrease) increase in accounts payable |
|
| (19,444 | ) |
|
| 6,935 |
|
Decrease in customer credit balances |
|
| (15,485 | ) |
|
| (38,497 | ) |
Increase in other current and long-term liabilities |
|
| 6,128 |
|
|
| 6,724 |
|
Net cash provided by (used in) operating activities |
|
| 102,715 |
|
|
| (31,433 | ) |
Cash flows provided by (used in) investing activities: |
|
|
|
|
|
| ||
Capital expenditures |
|
| (6,651 | ) |
|
| (11,673 | ) |
Proceeds from sales of fixed assets |
|
| 781 |
|
|
| 579 |
|
Proceeds from sale of certain assets |
|
| 2,202 |
|
|
| — |
|
Purchase of investments |
|
| (719 | ) |
|
| (555 | ) |
Acquisitions |
|
| (1,193 | ) |
|
| (13,121 | ) |
Net cash used in investing activities |
|
| (5,580 | ) |
|
| (24,770 | ) |
Cash flows provided by (used in) financing activities: |
|
|
|
|
|
| ||
Revolving credit facility borrowings |
|
| 125,601 |
|
|
| 200,177 |
|
Revolving credit facility repayments |
|
| (145,679 | ) |
|
| (79,464 | ) |
Term loan repayments |
|
| (12,375 | ) |
|
| (14,615 | ) |
Distributions |
|
| (17,624 | ) |
|
| (17,350 | ) |
Unit repurchases |
|
| (4,475 | ) |
|
| (27,309 | ) |
Customer retainage payments |
|
| (57 | ) |
|
| (1,039 | ) |
Net cash (used in) provided by financing activities |
|
| (54,609 | ) |
|
| 60,400 |
|
Net increase in cash, cash equivalents, and restricted cash |
|
| 42,526 |
|
|
| 4,197 |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
| 14,870 |
|
|
| 5,017 |
|
Cash, cash equivalents, and restricted cash at end of period |
| $ | 57,396 |
|
| $ | 9,214 |
|
See accompanying notes to condensed consolidated financial statements.
8
STAR GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1) Organization
Star Group, L.P. (“Star”Star,” the “Company,” “we,” “us,” or “our”) is a full service provider specializing in the sale of home heating and air conditioning products and services to residential and commercial customers. The Company also services and sells heating and air conditioning equipment to its home heating oil and propane customers and to a lesser extent, provides these offerings to customers outside of our home heating oil and propane customer base. In certain of our marketing areas, we provide home security and plumbing services primarily to our home heating oil and propane customer base.customers. The Company has one reportable segment for accounting purposes. We also sell diesel fuel, gasoline and home heating oil on a delivery only basis. These products and services are offered through our home heating oil and propane locations. The Company has one reportable segment for accounting purposes. We believe we are the nation’s largest retail distributor of home heating oil based upon sales volume. Including our propane locations, we serve customers in the more northern and eastern states within the Northeast, Central and Southeast U.S. regions.
The Company is organized as follows:
Star is a limited partnership, which at December 31, 2017,June 30, 2023, had outstanding 55.935.6 million Common Units (NYSE: “SGU”), representing a 99.4%99.1% limited partner interest in Star, and 0.3 million general partner units, representing a 0.6%0.9% general partner interest in Star. Our general partner is Kestrel Heat, LLC, a Delaware limited liability company (“Kestrel Heat” or the “general partner”). The Board of Directors of Kestrel Heat (the “Board”) is appointed by its sole member, Kestrel Energy Partners, LLC, a Delaware limited liability company (“Kestrel”).
Star owns 100%100% of Star Acquisitions, Inc. (“SA”), a Minnesota corporation that owns 100%100% of Petro Holdings, Inc. (“Petro”). SA and its subsidiaries are subject to Federal and state corporate income taxes. Star’s operations are conducted through Petro and its subsidiaries. Petro is primarily a Northeast Central and SoutheastMid-Atlantic U.S. region retail distributor of home heating oil and propane that at December 31, 2017June 30, 2023 served approximately 461,000 full-service403,900 full service residential and commercial home heating oil and propane customers. Petro also sold diesel fuel, gasolinecustomers and home heating oil to approximately 76,00077,200 customers on a delivery only basis. We installed, maintained,also sell gasoline and repaireddiesel fuel to approximately 26,900 customers. We install, maintain, and repair heating and air conditioning equipment and to a lesser extent providedprovide these services outside our heating oil and propane customer base including 14,000approximately 21,100 service contracts for natural gas and other heating systems. In addition, we provided home security and plumbing, to approximately 31,000 customers.
Petroleum Heat and Power Co., Inc. (“PH&P”) is a 100%wholly owned subsidiary of Star. PH&P is the borrower and Star is the guarantor of the thirdsixth amended and restated credit agreement’s $165 million five-year senior secured term loan and the $300$400 million ($450550 million during the heating season of December through April of each year) revolving credit facility, both due July 30, 2020.6, 2027. (See Note 9—11—Long-Term Debt and Bank Facility Borrowings).
2) Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts of Star Group, L.P. and its subsidiaries. All material intercompany items and transactions have been eliminated in consolidation.
The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair statement of financial condition and results for the interim periods. Due to the seasonal nature of the Company’s business, the results of operations and cash flows for the three monthnine-month period ended December 31, 2017June 30, 2023 are not necessarily indicative of the results to be expected for the full year.
These interim financial statements of the Company have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2017.2022.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of Net income (loss) and Other comprehensive income.income (loss). Other comprehensive income (loss) consists of the unrealized gain on amortization on the Company’s pension plan obligation for its two frozen defined benefit pension plans, unrealized gain (loss) on available-for-sale investments, unrealized gain (loss) on interest rate hedges and the corresponding tax effect.effects.
89
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At December 31, 2017,June 30, 2023, the $21.4$57.4 million of cash, cash equivalents, and restricted cash on the condensed consolidated statementCondensed Consolidated Statements of cash flowsCash Flows is composed of $21.1$57.1 million of cash and cash equivalents and $0.3$0.3 million of restricted cash. At September 30, 2017,2022, the $52.7$14.9 million of cash, cash equivalents, and restricted cash on the condensed consolidated statementsCondensed Consolidated Statements of cash flowCash Flows is composed of $52.5$14.6 million of cash and cash equivalents and $0.3$0.3 million of restricted cash. Restricted cash represents deposits held by our captive insurance company that are required by state insurance regulations to remain in the captive insurance company as cash.
Assets Held for Sale
Assets held for sale at September 30, 2022 represent certain heating oil assets that the Company sold on October 25, 2022. The carrying amount of the assets held for sale included $2.2 million of goodwill and $0.8 million of property and equipment, net. We measure and record assets held for sale at the lower of their carrying amount or fair value less cost to sell. The carrying amounts of the assets held for sale approximated their fair value at September 30, 2022.
Fair Value Valuation Approach
The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Captive Insurance Collateral
At December 31, 2017The captive insurance collateral is comprised of $45.1 million of Level 1 debt securities measured at fair value and $0.7 million of mutual funds measured at net asset value. At September 30, 2017 the balance was comprised of $11.3 million of Level 1 debt securities measured at fair value and $0.5 million of mutual funds measured at net asset value.
The investments are held by our captive insurance company in an irrevocable trust as collateral for certain workers’ compensation general and automobile liability claims. The collateral is required by a third party insurance carrier that insures per claim amounts above a set deductible. If we did not deposit cash into the trust, the third party carrier would require that we issue an equal amount of letters of credit, which would reduce our availability under the sixth amended and restated credit agreement. Due to the expected timing of claim payments, the nature of the collateral agreement with the carrier, and our captive insurance company’s source of other operating cash, the collateral is not expected to be used to pay obligations within the next twelve months.
At September 30, 2017 the investments were heldUnrealized gains and losses, net of related income taxes, are reported as accumulated other comprehensive income (loss), except for workers’ compensation, general and automobile liability claims incurred and expectedlosses from impairments which are determined to be incurredother-than-temporary. Realized gains and losses, and declines in fiscal 2017. In the first quarter of fiscal 2018 we deposited $34.2 million of cash into the irrevocable trust to secure certain workers’ compensation, general and automobile liability claims incurred and expectedvalue judged to be incurred from fiscal 2004other-than-temporary on available-for-sale securities are included in the determination of net income and are included in Interest expense, net, at which time the average cost basis of these securities are adjusted to fiscal 2016 and fiscal 2018.fair value.
Weather Hedge Contract
To partially mitigate the adverse effect of warm weather on cash flows, the Company has used weather hedge contracts for a number of years. Weather hedge contracts are recorded in accordance with the intrinsic value method defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-45-15 Derivatives and Hedging, Weather Derivatives (EITF 99-2). The premium paid is included in the caption Prepaid“Prepaid expenses and other current assetsassets” in the accompanying balance sheets and amortized over the life of the contract, with the intrinsic value method applied at each interim period.
10
The Company hasentered into weather hedge contracts for fiscal years 2017, 20182022 and 2019. Under these contracts, we are entitled to receive a payment if the total number of degree days within the hedge period is less than the ten year average. The “Payment Thresholds,” or strikes, are set at various levels. In addition, we will be obligated to make a payment capped at $5.0 million if degree days exceed the ten year average.2023. The hedge period runs from November 1 through March 31, taken as a whole,whole. The “Payment Thresholds,” or strikes, are set at various levels and are referenced against degree days for each respective fiscalthe prior ten year average. The maximum amount the Company can receive is $12.5 million per year. In addition, we are obligated to make an annual payment capped at $5.0 million if degree days exceed the Payment Threshold. The temperatures experienced during the hedge period through March 31, 2023 and March 31, 2022 were warmer than the strikes in the weather hedge contracts. As a result at June 30, 2023 and June 30, 2022, the Company reduced delivery and branch expenses for the gains realized under those contracts of $12.5 million and $1.1 million, respectively. The amounts payable by the counterparties under the weather hedge contracts were received in full in April 2023 and April 2022, respectively.
For fiscal 20182024, the Company entered into a weather hedge contract with the similar hedge period described above. The maximum that the Company can receive is $17.5$12.5 million annually and the maximum that the Company would be obligatedhas no obligation to pay is $5.0 million. For fiscal 2019 the maximum thatcounterparty beyond the Company can receive is $12.5 million andinitial premium should degree days exceed the maximum that the Company would be obligated to pay is $5.0 million. In accordance with ASC 815-45-15, as of December 31, 2017, the Company recorded a charge of $3.1 million under this contract that increased delivery and branch expenses. No credit was recorded as of December 31, 2016.Payment Threshold.
New England Teamsters and Trucking Industry Pension Fund (“the NETTI Fund”) Liability
As of December 31, 2017,June 30, 2023, we had $0.2$0.3 million and $17.3$16.0 million balances included in the captions Accrued“Accrued expenses and other current liabilitiesliabilities” and Other“Other long-term liabilities, respectively,” on our condensed consolidated balance sheetCondensed Consolidated Balance Sheet representing the remaining balance of the NETTI Fund withdrawal liability. As of September 30, 2022, we had $0.3 million and $16.2 million balances reflected in these categories respectively. Based on the borrowing rates currently available to the Company for long-term financing of a similar maturity, the fair value of the NETTI Fund withdrawal liability as of December 31, 2017June 30, 2023 and September 30, 2022 was $22.3 million.$19.9 million and $20.2 million, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.
Recently Adopted Accounting Pronouncements
In July 2015,December 2022, the FASB issued ASU No. 2015-11, Simplifying2022-06, Reference Rate Reform (Topic 848) Facilitation of the MeasurementEffects of Inventory. The update changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value.Reference Rate Reform on Financial Reporting. The Company adopted the ASU effective December 31, 2017.2022. The update extends the sunset of Topic 848 from December 31, 2022 to December 31, 2024. The guidance provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. The Company has $24.0 million of interest rate swap agreements at June 30, 2023 that are benchmarked against LIBOR, which the Company has designated as cash flow hedging derivatives. This guidance includes practical expedients for contract modifications due to reference rate reform. The Company has elected to adopt the practical expedient that the Company may change the contractual terms of the interest rate swap agreements that are expected to be affected by reference rate reform and not be required to de-designate the hedging relationships. The Company's adoption of the ASU No. 2015-11 did not have an impact on the Company’s consolidated financial statements and related disclosures.
9
Recently Issued Accounting Pronouncements
In May 2014,October 2021, the FASB issued ASU No. 2014-09, Revenue2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expectsaccounting for contract assets and liabilities from contracts with customers in a business combination to be entitledaccounted for the transfer of promised goods or services to customers.in accordance with ASC No. 606. The FASB has also issued several updates to ASU 2014-09. This ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. This new guidancestandard is effective for our annual reporting periodfiscal years beginning in the first quarter of fiscal 2019, with early adoption permitted beginning in the first quarter of fiscal 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is in the process of evaluating the effect that ASU 2014-09 will have on its revenue streams, consolidated financial statements and related disclosures. The Company has not yet selected a transition method, nor does it intend to early adopt.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The update requires all leases with a term greater than twelve months to be recognized on the balance sheet by calculating the discounted present value of such leases and accounting for them through a right-of-use asset and an offsetting lease liability, and the disclosure of key information pertaining to leasing arrangements. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2020, with early adoption permitted. The Company does not intend to early adopt. The Company is continuing to evaluate the effect that ASU No. 2016-02 could have on its consolidated financial statements and related disclosures, but has not yet selected a transition method. The new guidance will materially change how we account for operating leases for office space, trucks and other equipment. Upon adoption, we expect to recognize discounted right-of-use assets and offsetting lease liabilities related to our operating leases of office space, trucks and other equipment. As ofafter December 31, 2017, the undiscounted future minimum lease payments through 2032 for such operating leases are approximately $131.1 million, but what amount of leasing activity is expected between December 31, 2017, and the date of adoption, is currently unknown. For this reason we are unable to estimate the discounted right-of-use assets and lease liabilities as of the date of adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. The update broadens the information that an entity should consider in developing expected credit loss estimates, eliminates the probable initial recognition threshold, and allows for the immediate recognition of the full amount of expected credit losses. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2021, with early adoption permitted in the first quarter of fiscal 2020. The Company is evaluating the effect that ASU No. 2016-13 will have on its consolidated financial statements and related disclosures, but has not yet determined the timing of adoption.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update addresses the issues of debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2019, with early adoption permitted.15, 2022. The Company has not determined the timing of adoption, but does not expect ASU 2016-152021-08 to have a material impact on its consolidated financial statements and related disclosures.
In January 2017,11
3) Revenue Recognition
The following disaggregates our revenue by major sources for the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifyingthree and nine months ended June 30, 2023 and June 30, 2022:
|
| Three Months |
|
| Nine Months |
| |||||||||
(in thousands) |
| 2023 |
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Petroleum Products: |
|
|
|
|
|
|
|
|
|
|
| ||||
Home heating oil and propane |
| $ | 122,003 |
| $ | 189,262 |
|
| $ | 1,123,983 |
|
| $ | 1,088,460 |
|
Other petroleum products |
|
| 101,562 |
|
| 168,974 |
|
|
| 338,723 |
|
|
| 393,503 |
|
Total petroleum products |
|
| 223,565 |
|
| 358,236 |
|
|
| 1,462,706 |
|
|
| 1,481,963 |
|
Installations and Services: |
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment installations |
|
| 27,474 |
|
| 30,360 |
|
|
| 85,471 |
|
|
| 90,394 |
|
Equipment maintenance service contracts |
|
| 34,564 |
|
| 33,185 |
|
|
| 92,241 |
|
|
| 87,503 |
|
Billable call services |
|
| 14,518 |
|
| 17,320 |
|
|
| 45,507 |
|
|
| 50,054 |
|
Total installations and services |
|
| 76,556 |
|
| 80,865 |
|
|
| 223,219 |
|
|
| 227,951 |
|
Total Sales |
| $ | 300,121 |
| $ | 439,101 |
|
| $ | 1,685,925 |
|
| $ | 1,709,914 |
|
Deferred Contract Costs
We recognize an asset for incremental commission expenses paid to sales personnel in conjunction with obtaining new residential customer product and equipment maintenance service contracts. We defer these costs only when we have determined the definitioncommissions are, in fact, incremental and would not have been incurred absent the customer contract. Costs to obtain a contract are amortized and recorded ratably as delivery and branch expenses over the period representing the transfer of a business. The update clarifiesgoods or services to which the definitionassets relate. Costs to obtain new residential product and equipment maintenance service contracts are amortized as expense over the estimated customer relationship period of a businessapproximately five years. Deferred contract costs are classified as current or non-current within “Prepaid expenses and other current assets” and “Deferred charges and other assets, net,” respectively. At June 30, 2023, the amount of deferred contract costs included in “Prepaid expenses and other current assets” and “Deferred charges and other assets, net” was $3.3 million and $5.6 million, respectively. At September 30, 2022, the amount of deferred contract costs included in “Prepaid expenses and other current assets” and “Deferred charges and other assets, net” was $3.4 million and $5.6 million, respectively. For the nine months ended June 30, 2023 and June 30, 2022 we recognized expense of $3.2 million and 3.0 million, respectively, associated with the objectiveamortization of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This new guidance is effective for our annual reporting period beginningdeferred contract costs within “Delivery and branch expenses” in the first quarterCondensed Consolidated Statement of fiscal 2019, with early adoption permitted. Operations.
Contract Liability Balances
The Company has not determinedcontract liabilities for advanced payments received from customers for future oil deliveries (primarily amounts received from customers on “smart pay” budget payment plans in advance of oil deliveries) and obligations to service customers with equipment maintenance service contracts. Contract liabilities are recognized straight-line over the timingservice contract period, generally one year or less. As of adoption, but does not expect ASU 2017-01June 30, 2023 and September 30, 2022 the Company had contract liabilities of $136.9 million and $152.1 million, respectively. During the nine months ended June 30, 2023, the Company recognized $133.1 million of revenue that was included in the September 30, 2022 contract liability balance. During the nine months ended June 30, 2022 the Company recognized $123.8 million of revenue that was included in the September 30, 2021 contract liability balance.
Receivables and Allowance for Doubtful Accounts
Accounts receivables from customers are recorded at the invoiced amounts. Finance charges may be applied to have a material impact on its consolidated financial statementstrade receivables that are more than 30 days past due, and related disclosures.are recorded as finance charge income.
In January 2017,The allowance for doubtful accounts is the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 230): Simplifying the test for goodwill impairment. The update simplifies how an entity is required to test goodwill for impairment. An entity should recognize an impairment charge forCompany’s estimate of the amount of trade receivables that may not be collectible. The allowance is determined at an aggregate level by which the carrying amount exceeds the reporting unit’s fair value, but not exceed the total amount of goodwill allocated to the reporting unit. This new guidancegrouping accounts based on certain account criteria and its receivable aging. The allowance is effective for our annual reporting period beginning in the first quarter of fiscal 2021, with early adoption permitted.based on both quantitative and qualitative factors, including historical loss experience, historical collection patterns, overdue status, aging trends, current and future economic conditions. The Company has not determinedan established process to periodically review current and past due trade receivable balances to determine the timingadequacy of adoption, but does not expect ASU 2017-04the allowance. No single statistic or measurement determines the adequacy of the allowance. The total allowance reflects management’s estimate of losses inherent in its trade receivables at the balance sheet date. Different assumptions or changes in economic conditions could result in material changes to have a material impact on its consolidated financial statements and related disclosures.the allowance for doubtful accounts.
12
Changes in the allowance for credit losses are as follows:
10
(in thousands) | Credit Loss Allowance |
| |
Balance at September 30, 2022 | $ | 7,755 |
|
Current period provision |
| 8,510 |
|
Write-offs, net and other |
| (3,714 | ) |
Balance as of June 30, 2023 | $ | 12,551 |
|
4) Common Unit Repurchase and Retirement
In July 2012, the Board authorized theadopted a plan to repurchase of up to 3.0 millioncertain of the Company’s Common Units (“Plan III”(the “Repurchase Plan”). In July 2013,Through May 2023, the Board authorized the repurchase of an additional 1.9Company had repurchased approximately 20.5 million Common Units under Plan III. Thethe Repurchase Plan. In May 2023, the Board authorized an increase of the number of Common Unit repurchases may be madeUnits that remained available for the Company to repurchase from time1.1 million to timea total of 2.6 million, of which, 2.3 million were available for repurchase in the open market transactions and 0.3 million were available for repurchase in privately negotiated transactions or in such other manner deemed appropriate by management.privately-negotiated transactions. There is no guarantee of the exact number of units that will be purchased under the programRepurchase Plan and the Company may discontinue purchases at any time. The programRepurchase Plan does not have a time limit. The Board may also approve additional purchases of units from time to time in private transactions. The Company’s repurchase activities take into account SEC safe harbor rules and guidance for issuer repurchases. All of the Common Units purchased inunder the repurchase programRepurchase Plan will be retired.
Under the Company’s thirdsixth amended and restated credit agreement dated July 30, 2015,6, 2022, in order to pay distributions and repurchase Common Units, we must maintain Availability (as defined in the sixth amended and restated credit agreement) of $45$60 million, 15.0%15.0% of the facility size of $300$400 million (assuming no borrowings under the non-seasonal aggregate commitment is in effect)seasonal advance) on a historical pro forma and forward-looking basis, and a fixed charge coverage ratio of not less than 1.15 measured as of the date of repurchase. The Company was in compliance with this covenant as of December 31, 2017.repurchase or distribution. (See Note 11—Long-Term Debt and Bank Facility Borrowings).
The following table shows repurchases under Plan III.the Repurchase Plan:
(in thousands, except per unit amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Total Number of |
|
| Average Price |
|
| Total Number of |
|
| Maximum Number |
|
| ||||
Fiscal year 2012 to 2022 total |
|
| 24,933 |
|
| $ | 8.82 |
|
|
| 20,045 |
|
|
| 1,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
First quarter fiscal year 2023 total |
|
| 411 |
|
| $ | 8.77 |
|
|
| 411 |
|
|
| 1,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Second quarter fiscal year 2023 total |
|
| 78 |
|
| $ | 11.20 |
|
|
| 78 |
|
|
| 1,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Third quarter fiscal year 2023 total |
|
| — |
|
| $ | — |
|
|
| — |
|
|
| 2,568 |
| (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
July 2023 |
|
| — |
|
| $ | — |
|
|
| — |
|
|
| 2,568 |
| (c) |
(in thousands, except per unit amounts) Period |
| Total Number of Units Purchased (a) |
|
| Average Price Paid per Unit (b) |
|
| Maximum Number of Units that May Yet Be Purchased |
| |||
Plan III - Number of units authorized |
|
|
|
|
|
|
|
|
|
| 4,894 |
|
Private transaction - Number of units authorized |
|
|
|
|
|
|
|
|
|
| 2,450 |
|
|
|
|
|
|
|
|
|
|
|
| 7,344 |
|
Plan III - Fiscal years 2012 to 2017 total (c) |
|
| 5,137 |
|
| $ | 5.78 |
|
|
| 2,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan III - First quarter fiscal year 2018 total |
|
| - |
|
| $ | - |
|
|
| 2,207 |
|
13
5) Captive Insurance Collateral
|
|
|
|
|
|
The Company considers all of its captive insurance collateral to be Level 1 available-for-sale investments. Investments at June 30, 2023 consist of the following (in thousands):
|
| Amortized Cost |
| Gross Unrealized Gain |
|
| Gross Unrealized (Loss) |
|
| Fair Value |
| |||||
Cash and Receivables |
| $ | 537 |
|
| $ | — |
|
| $ | — |
|
| $ | 537 |
|
U.S. Government Sponsored Agencies |
|
| 50,471 |
|
|
| — |
|
|
| (2,156 | ) |
|
| 48,315 |
|
Corporate Debt Securities |
|
| 20,234 |
|
|
| 6 |
|
|
| (741 | ) |
|
| 19,499 |
|
Total |
| $ | 71,242 |
|
| $ | 6 |
|
| $ | (2,897 | ) |
| $ | 68,351 |
|
Investments at September 30, 2022 consist of the following (in thousands):
|
| Amortized Cost |
| Gross Unrealized Gain |
|
| Gross Unrealized (Loss) |
|
| Fair Value |
| |||||
Cash and Receivables |
| $ | 1,838 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,838 |
|
U.S. Government Sponsored Agencies |
|
| 48,473 |
|
|
| — |
|
|
| (3,052 | ) |
|
| 45,421 |
|
Corporate Debt Securities |
|
| 20,322 |
|
|
| — |
|
|
| (919 | ) |
|
| 19,403 |
|
Total |
| $ | 70,633 |
|
| $ | — |
|
| $ | (3,971 | ) |
| $ | 66,662 |
|
4)
Maturities of investments were as follows at June 30, 2023 (in thousands):
|
| Net Carrying Amount |
| |
Due within one year |
| $ | 26,218 |
|
Due after one year through five years |
|
| 42,133 |
|
Due after five years through ten years |
|
| — |
|
Total |
| $ | 68,351 |
|
6) Derivatives and Hedging—Disclosures and Fair Value Measurements
FASB ASC 815-10-05 Derivatives and Hedging, established accounting and reporting standards requiring that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities, along with qualitative disclosures regarding the derivative activity. The Company uses derivative instruments such as futures, options and swap agreements in order to mitigate exposure to market risk associated with the purchase of home heating oil for price-protected customers, physical inventory on hand, inventory in transit, priced purchase commitments and internal fuel usage. FASB ASC 815-10-05 Derivatives and Hedging, established accounting and reporting standards requiring that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities, along with qualitative disclosures regarding the derivative activity. The Company has elected not to designate its commodity derivative instruments as hedging derivatives, but rather as economic hedges whose change in fair value is recognized in its statement of operations in the line item (increase)caption “(Increase) decrease in the fair value of derivative instruments.” Depending on the risk being economically hedged, realized gains and losses are recorded in cost of product, cost of installations and services, or delivery and branch expenses.
As of December 31, 2017,June 30, 2023, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers, the Company held the following derivative instruments that settle in future months to match anticipated sales: 17.95.0 million gallons of swap contracts, 7.36.1 million gallons of call options, 8.72.2 million gallons of put options, and 83.941.6 million net gallons of synthetic call options. To hedge the inter-month differentials for its price-protected customers, its physical inventory on hand, and inventory in transit and basis risk, the Company, as of December 31, 2017, had 27.8June 30, 2023, held 0.9 million gallons of long futureswap contracts and 55.110.9 million gallons of short future contracts that settle in future months. To hedge its internal fuel usage and other related activities for fiscal 2018,2023 and 2024, the Company as of December 31, 2017, had 2.3held 5.4 million gallons of swap contracts that settle in future months.
1114
As of December 31, 2016,June 30, 2022, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers, the Company held the following derivative instruments that settle in future months to match anticipated sales: 14.05.5 million gallons of swap contracts, 7.637.3 million gallons of call options, 9.02.1 million gallons of put options, and 89.217.6 million net gallons of synthetic call options. To hedge the inter-month differentials for its price-protected customers, its physical inventory on hand and inventory in transit, the Company, as of December 31, 2016, had 1.0June 30, 2022, held 26.0 million gallons of long swap contracts 23.5 million gallons of long future contracts, and 44.70.5 million gallons of short future contracts that settle in future months. In addition to the previously described hedging instruments, the Company as of December 31, 2016, had 5.1 million gallons of spread contracts (simultaneous long and short positions) to lock-in the differential between high sulfur home heating oil and ultra low sulfur diesel. To hedge its internal fuel usage and other related activities for fiscal 2017,2023, the Company as of December 31, 2016, had 4.2held 0.4 million gallons of call options and swap contracts that settle in future months.
As of June 30, 2023, the Company has interest rate swap agreements in order to mitigate exposure to market risk associated with variable rate interest on $56.4 million, or 37.0%, of its long term debt. The Company has designated its interest rate swap agreements as cash flow hedging derivatives. To the extent these derivative instruments are effective and the accounting standard’s documentation requirements have been met, changes in fair value are recognized in other comprehensive income (loss) until the underlying hedged item is recognized in earnings. As of June 30, 2023 the fair value of the swap contracts was $1.5 million. As of September 30, 2022, the notional value of the swap contracts was $54.0 million and the fair value of the swap contracts was $2.0 million. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of the swap contracts.
The Company’s derivative instruments are with the following counterparties: Bank of America, N.A., Bank of Montreal, Cargill, Inc., Citibank, N.A., JPMorgan Chase Bank, N.A., Key Bank, N.A., Munich Re Trading LLC, Regions Financial Corporation, Societe Generale,Toronto-Dominion Bank and Wells Fargo Bank, N.A. The Company assesses counterparty credit risk and considers it to be low. We maintain master netting arrangements that allow for the non-conditional offsetting of amounts receivable and payable with counterparties to help manage our risks and record derivative positions on a net basis. The Company generally does not receive cash collateral from its counterparties and does not restrict the use of cash collateral it maintains at counterparties. At December 31, 2017,June 30, 2023, the aggregate cash posted as collateral in the normal course of business at counterparties was $1.5$1.8 million and recorded in prepaid“Prepaid expense and other current assets.” Positions with counterparties who are also parties to our credit agreement are collateralized under that facility. As of December 31, 2017, noJune 30, 2023, $9.8 million hedge positions andor payable amounts were secured under the credit facility.
FASB ASC 820-10 Fair Value Measurements and Disclosures, established a three-tier fair value hierarchy, which classified the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company’s Level 1 derivative assets and liabilities represent the fair value of commodity contracts used in its hedging activities that are identical and traded in active markets. The Company’s Level 2 derivative assets and liabilities represent the fair value of commodity and interest rate contracts used in its hedging activities that are valued using either directly or indirectly observable inputs, whose nature, risk and class are similar. No significant transfers of assets or liabilities have been made into and out of the Level 1 or Level 2 tiers. All derivative instruments were non-trading positions and were either a Level 1 or Level 2 instrument. The Company had no Level 3 derivative instruments. The fair market value of our Level 1 and Level 2 derivative assets and liabilities are calculated by our counter-parties and are independently validated by the Company. The Company’s calculations are, for Level 1 derivative assets and liabilities, based on the published New York Mercantile Exchange (“NYMEX”) market prices for the commodity contracts open at the end of the period. For Level 2 derivative assets and liabilities the calculations performed by the Company are based on a combination of the NYMEX published market prices and other inputs, including such factors as present value, volatility and duration.
1215
The Company had no assets or liabilities that are measured at fair value on a nonrecurring basis subsequent to their initial recognition. The Company’s commodity financial assets and liabilities measured at fair value on a recurring basis are listed on the following table.
(In thousands) |
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using: |
|
|
|
|
|
|
| Fair Value Measurements at Reporting Date Using: |
| |||||||||||
Derivatives Not Designated as Hedging Instruments |
|
|
|
|
|
|
| Quoted Prices in Active Markets for Identical Assets |
|
| Significant Other Observable Inputs |
|
|
|
|
|
|
| Quoted Prices in |
|
| Significant Other |
| |||||
Under FASB ASC 815-10 |
| Balance Sheet Location |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Balance Sheet Location |
| Total |
|
| Level 1 |
|
| Level 2 |
| ||||||
Asset Derivatives at December 31, 2017 |
| |||||||||||||||||||||||||||
Asset Derivatives at June 30, 2023 | Asset Derivatives at June 30, 2023 |
| ||||||||||||||||||||||||||
Commodity contracts |
| Fair asset and fair liability value of derivative instruments |
| $ | 19,220 |
|
| $ | - |
|
| $ | 19,220 |
|
| Fair liability value of derivative instruments |
| $ | 17,224 |
|
| $ | — |
|
| $ | 17,224 |
|
Commodity contracts |
| Long-term derivative assets included in the deferred charges and other assets, net balance |
|
| 755 |
|
| $ | - |
|
|
| 755 |
|
| Other long-term liabilities, net balance |
|
| 574 |
|
|
| — |
|
|
| 574 |
|
Commodity contract assets at December 31, 2017 |
| $ | 19,975 |
|
| $ | - |
|
| $ | 19,975 |
| ||||||||||||||||
Liability Derivatives at December 31, 2017 |
| |||||||||||||||||||||||||||
Commodity contract assets at June 30, 2023 | Commodity contract assets at June 30, 2023 |
| $ | 17,798 |
|
| $ | — |
|
| $ | 17,798 |
| |||||||||||||||
Liability Derivatives at June 30, 2023 | Liability Derivatives at June 30, 2023 |
| ||||||||||||||||||||||||||
Commodity contracts |
| Fair liability and fair asset value of derivative instruments |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| Fair liability value of derivative instruments |
| $ | (27,622 | ) |
| $ | — |
|
| $ | (27,622 | ) |
Commodity contracts |
| Long-term derivative liabilities included in the deferred charges and other assets, net balance |
|
| (6 | ) |
|
|
|
|
|
| (6 | ) |
| Other long-term liabilities, net balance |
|
| (688 | ) |
|
| — |
|
|
| (688 | ) |
Commodity contract liabilities at December 31, 2017 |
| $ | (6 | ) |
| $ | - |
|
| $ | (6 | ) | ||||||||||||||||
Asset Derivatives at September 30, 2017 |
| |||||||||||||||||||||||||||
Commodity contract liabilities at June 30, 2023 | Commodity contract liabilities at June 30, 2023 |
| $ | (28,310 | ) |
| $ | — |
|
| $ | (28,310 | ) | |||||||||||||||
Asset Derivatives at September 30, 2022 | Asset Derivatives at September 30, 2022 |
| ||||||||||||||||||||||||||
Commodity contracts |
| Fair asset and fair liability value of derivative instruments |
| $ | 7,729 |
|
| $ | - |
|
| $ | 7,729 |
|
| Fair asset and liability value of derivative instruments |
| $ | 51,134 |
|
| $ | — |
|
| $ | 51,134 |
|
Commodity contracts |
| Long-term derivative assets included in the deferred charges and other assets, net balance |
|
| 996 |
|
|
| - |
|
|
| 996 |
|
| Long-term derivative assets included in the deferred charges and other assets, net |
|
| 2,094 |
|
|
| — |
|
|
| 2,094 |
|
Commodity contract assets at September 30, 2017 |
| $ | 8,725 |
|
| $ | - |
|
| $ | 8,725 |
| ||||||||||||||||
Liability Derivatives at September 30, 2017 |
| |||||||||||||||||||||||||||
Commodity contract assets September 30, 2022 | Commodity contract assets September 30, 2022 |
| $ | 53,228 |
|
| $ | — |
|
| $ | 53,228 |
| |||||||||||||||
Liability Derivatives at September 30, 2022 | Liability Derivatives at September 30, 2022 |
| ||||||||||||||||||||||||||
Commodity contracts |
| Fair liability and fair asset value of derivative instruments |
| $ | (2,086 | ) |
| $ | - |
|
| $ | (2,086 | ) |
| Fair asset and liability value of derivative instruments |
| $ | (34,494 | ) |
| $ | — |
|
| $ | (34,494 | ) |
Commodity contracts |
| Long-term derivative liabilities included in the deferred charges and other assets, net and other long-term liabilities balances |
|
| (731 | ) |
|
| - |
|
|
| (731 | ) |
| Long-term derivative assets included in the deferred charges and other assets, net |
|
| (743 | ) |
|
| — |
|
|
| (743 | ) |
Commodity contract liabilities at September 30, 2017 |
| $ | (2,817 | ) |
|
|
|
|
| $ | (2,817 | ) | ||||||||||||||||
Commodity contract liabilities September 30, 2022 | Commodity contract liabilities September 30, 2022 |
| $ | (35,237 | ) |
| $ | — |
|
| $ | (35,237 | ) |
1316
The Company’s commodity derivative assets (liabilities) offset by counterparty and subject to an enforceable master netting arrangement are listed on the following table.
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Position |
|
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the |
| |||||||||||||||||||||
Offsetting of Financial Assets (Liabilities) and Derivative Assets (Liabilities) |
| Gross Assets Recognized |
|
| Gross Liabilities Offset in the Statement of Financial Position |
|
| Net Assets (Liabilities) Presented in the Statement of Financial Position |
|
| Financial Instruments |
|
| Cash Collateral Received |
|
| Net Amount |
|
| Gross |
|
| Gross |
|
| Net Assets |
|
| Financial |
|
| Cash |
|
| Net |
| ||||||||||||
Fair liability value of derivative instruments |
| $ | 17,224 |
|
| $ | (27,622 | ) |
| $ | (10,398 | ) |
| $ | — |
|
| $ | — |
|
| $ | (10,398 | ) | ||||||||||||||||||||||||
Long-term derivative liabilities included in |
|
| 574 |
|
|
| (688 | ) |
|
| (114 | ) |
|
| — |
|
|
| — |
|
|
| (114 | ) | ||||||||||||||||||||||||
Total at June 30, 2023 |
| $ | 17,798 |
|
| $ | (28,310 | ) |
| $ | (10,512 | ) |
| $ | — |
|
| $ | — |
|
| $ | (10,512 | ) | ||||||||||||||||||||||||
Fair asset value of derivative instruments |
| $ | 19,220 |
|
| $ | - |
|
| $ | 19,220 |
|
| $ | - |
|
|
|
|
|
| $ | 19,220 |
|
| $ | 47,784 |
|
| $ | (30,961 | ) |
| $ | 16,823 |
|
| $ | — |
|
| $ | — |
|
| $ | 16,823 |
|
Long-term derivative assets included in deferred charges and other assets, net |
|
| 755 |
|
|
| (6 | ) |
|
| 749 |
|
|
| - |
|
|
| - |
|
|
| 749 |
|
|
| 2,094 |
|
|
| (743 | ) |
|
| 1,351 |
|
|
| — |
|
|
| — |
|
|
| 1,351 |
|
Fair liability value of derivative instruments |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,350 |
|
|
| (3,533 | ) |
|
| (183 | ) |
|
| — |
|
|
| — |
|
|
| (183 | ) |
Long-term derivative liabilities included in other long-term liabilities, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| ||||||||||||||||||||||||
Total at December 31, 2017 |
| $ | 19,975 |
|
| $ | (6 | ) |
| $ | 19,969 |
|
| $ | - |
|
| $ | - |
|
| $ | 19,969 |
| ||||||||||||||||||||||||
Fair asset value of derivative instruments |
| $ | 6,023 |
|
| $ | (91 | ) |
| $ | 5,932 |
|
| $ | - |
|
| $ | - |
|
| $ | 5,932 |
| ||||||||||||||||||||||||
Long-term derivative assets included in other long-term assets, net |
|
| 996 |
|
|
| (730 | ) |
|
| 266 |
|
|
| - |
|
|
| - |
|
|
| 266 |
| ||||||||||||||||||||||||
Fair liability value of derivative instruments |
|
| 1,706 |
|
|
| (1,995 | ) |
|
| (289 | ) |
|
| - |
|
|
| - |
|
|
| (289 | ) | ||||||||||||||||||||||||
Long-term derivative liabilities included in other long-term liabilities, net |
|
| - |
|
|
| (1 | ) |
|
| (1 | ) |
|
| - |
|
|
| - |
|
|
| (1 | ) | ||||||||||||||||||||||||
Total at September 30, 2017 |
| $ | 8,725 |
|
| $ | (2,817 | ) |
| $ | 5,908 |
|
| $ | - |
|
| $ | - |
|
| $ | 5,908 |
| ||||||||||||||||||||||||
Total at September 30, 2022 |
| $ | 53,228 |
|
| $ | (35,237 | ) |
| $ | 17,991 |
|
| $ | — |
|
| $ | — |
|
| $ | 17,991 |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
The Effect of Derivative Instruments on the Statement of Operations | The Effect of Derivative Instruments on the Statement of Operations |
| The Effect of Derivative Instruments on the Statement of Operations |
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
| Amount of (Gain) or Loss Recognized |
|
|
|
| Amount of (Gain) or Loss Recognized |
|
| Amount of (Gain) or Loss Recognized |
| ||||||||||||||
Derivatives Not Designated as Hedging Instruments Under FASB ASC 815-10 |
| Location of (Gain) or Loss Recognized in Income on Derivative |
| Three Months Ended December 31, 2017 |
|
| Three Months Ended December 31, 2016 |
|
| Location of (Gain) or Loss |
| Three Months Ended June 30, |
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||
Commodity contracts |
| Cost of product (a) |
| $ | 184 |
|
| $ | 3,381 |
|
| Cost of product (a) |
| $ | 5,566 |
| $ | (8,648 | ) |
| $ | 10,578 |
|
| $ | (27,168 | ) |
Commodity contracts |
| Cost of installations and service (a) |
| $ | (582 | ) |
| $ | (94 | ) |
| Cost of installations and service (a) |
| $ | (24 | ) | $ | (142 | ) |
| $ | 55 |
|
| $ | (1,624 | ) |
Commodity contracts |
| Delivery and branch expenses (a) |
| $ | (1,229 | ) |
| $ | (117 | ) |
| Delivery and branch expenses (a) |
| $ | 273 |
| $ | (138 | ) |
| $ | 422 |
|
| $ | (3,390 | ) |
Commodity contracts |
| (Increase) / decrease in the fair value of derivative instruments (b) |
| $ | (11,400 | ) |
| $ | (8,551 | ) |
| (Increase) / decrease in the fair |
| $ | (1,036 | ) | $ | (7,669 | ) |
| $ | 19,622 |
|
| $ | (11,881 | ) |
|
|
|
|
5)7) Inventories
The Company’s product inventories are stated at the lower of cost and net realizable value computed on the weighted average cost method. All other inventories, representing parts and equipment are stated at the lower of cost and net realizable value using the FIFO method. The components of inventory were as follows (in thousands):
|
| June 30, |
|
| September 30, |
| ||
Product |
| $ | 30,482 |
|
| $ | 58,727 |
|
Parts and equipment |
|
| 23,108 |
|
|
| 24,830 |
|
Total inventory |
| $ | 53,590 |
|
| $ | 83,557 |
|
|
| December 31, 2017 |
|
| September 30, 2017 |
| ||
Product |
| $ | 49,842 |
|
| $ | 37,941 |
|
Parts and equipment |
|
| 21,662 |
|
|
| 21,655 |
|
Total inventory |
| $ | 71,504 |
|
| $ | 59,596 |
|
1417
Property and equipment are stated at cost. Depreciation and amortization is computed over the estimated useful lives of the depreciable assets using the straight-line method (in thousands):
|
| June 30, |
|
| September 30, |
| ||
Property and equipment |
| $ | 247,206 |
|
| $ | 246,919 |
|
Less: accumulated depreciation and amortization |
|
| 143,708 |
|
|
| 139,175 |
|
Property and equipment, net |
| $ | 103,498 |
|
| $ | 107,744 |
|
|
| December 31, 2017 |
|
| September 30, 2017 |
| ||
Property and equipment |
| $ | 203,674 |
|
| $ | 201,312 |
|
Less: accumulated depreciation |
|
| 124,136 |
|
|
| 121,639 |
|
Property and equipment, net |
| $ | 79,538 |
|
| $ | 79,673 |
|
7)9) Business Combinations and Divestitures
During fiscal 2018,year 2023 the Company sold certain assets for cash proceeds of $2.2 million and acquired two heating oil dealers for an aggregate purchase price of approximately $0.3 million.$1.2 million (using $1.2 million in cash). The gross purchase price was allocated $1.7 million to intangible assets, $0.2 million to goodwill, $0.2 million to fixed assets and reduced by $0.9 million of negative working capital. The acquired companies’ operating results are included in the Company’s consolidated financial statements starting on their respective acquisition dates,date, and are not material to the Company’s financial condition, results of operations, or cash flows.
8)During the nine months ended June 30, 2022, the Company acquired five heating oil dealers for an aggregate purchase price of approximately $15.6 million (using $13.1 million in cash and assuming $2.5 million of liabilities). The gross purchase price was allocated $7.3 million to intangible assets, $3.1 million to goodwill, $5.6 million to fixed assets and reduced by $0.4 million of negative working capital.
10) Goodwill and Intangibles,Intangible Assets, net
Goodwill
A summary of changes in the Company’s goodwill is as follows (in thousands):
Balance as of September 30, 2017 |
| $ | 225,915 |
|
Fiscal year 2018 business combinations |
|
| 63 |
|
Balance as of December 31, 2017 |
| $ | 225,978 |
|
Balance as of September 30, 2022 |
| $ | 254,110 |
|
Fiscal year 2023 business combinations |
|
| 244 |
|
Balance as of June 30, 2023 |
| $ | 254,354 |
|
Intangibles, net
The gross carrying amount and accumulated amortization of intangible assets subject to amortization are as follows (in thousands):
|
| December 31, 2017 |
|
| September 30, 2017 |
|
| June 30, 2023 |
|
| September 30, 2022 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross |
|
|
|
|
|
|
|
|
|
| Gross |
|
|
|
|
|
|
|
|
|
| Gross |
|
|
|
|
|
|
|
| Gross |
|
|
|
|
|
|
| ||||||||
|
| Carrying |
|
| Accum. |
|
|
|
|
|
| Carrying |
|
| Accum. |
|
|
|
|
|
| Carrying |
|
| Accum. |
|
|
|
|
| Carrying |
|
| Accum. |
|
|
|
| ||||||||||
|
| Amount |
|
| Amortization |
|
| Net |
|
| Amount |
|
| Amortization |
|
| Net |
|
| Amount |
|
| Amortization |
|
| Net |
|
| Amount |
|
| Amortization |
|
| Net |
| ||||||||||||
Customer lists |
| $ | 346,995 |
|
| $ | 268,362 |
|
| $ | 78,633 |
|
| $ | 346,784 |
|
| $ | 264,632 |
|
| $ | 82,152 |
|
| $ | 409,679 |
|
| $ | 354,922 |
|
| $ | 54,757 |
|
| $ | 409,980 |
|
| $ | 345,237 |
|
| $ | 64,743 |
|
Trade names and other intangibles |
|
| 32,047 |
|
|
| 10,037 |
|
|
| 22,010 |
|
|
| 32,047 |
|
|
| 8,981 |
|
|
| 23,066 |
|
|
| 41,515 |
|
|
| 23,000 |
|
|
| 18,515 |
|
|
| 41,736 |
|
|
| 21,969 |
|
|
| 19,767 |
|
Total |
| $ | 379,042 |
|
| $ | 278,399 |
|
| $ | 100,643 |
|
| $ | 378,831 |
|
| $ | 273,613 |
|
| $ | 105,218 |
|
| $ | 451,194 |
|
| $ | 377,922 |
|
| $ | 73,272 |
|
| $ | 451,716 |
|
| $ | 367,206 |
|
| $ | 84,510 |
|
Amortization expense for intangible assets was $4.7$12.8 million for the threenine months ended December 31, 2017,June 30, 2023, compared to $3.9$13.8 million for the threenine months ended December 31, 2016.June 30, 2022.
9)11) Long-Term Debt and Bank Facility Borrowings
The Company’s debt is as follows (in thousands):
|
| June 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
| ||||||||||
|
| Carrying |
|
| Fair Value (a) |
|
| Carrying |
|
| Fair Value (a) |
| ||||
Revolving Credit Facility Borrowings |
| $ | 198 |
|
| $ | 198 |
|
| $ | 20,276 |
|
| $ | 20,276 |
|
Senior Secured Term Loan (b) |
|
| 151,894 |
|
|
| 152,625 |
|
|
| 164,084 |
|
|
| 165,000 |
|
Total debt |
| $ | 152,092 |
|
| $ | 152,823 |
|
| $ | 184,360 |
|
| $ | 185,276 |
|
Total short-term portion of debt |
| $ | 16,698 |
|
| $ | 16,698 |
|
| $ | 32,651 |
|
| $ | 32,651 |
|
Total long-term portion of debt (b) |
| $ | 135,394 |
|
| $ | 136,125 |
|
| $ | 151,709 |
|
| $ | 152,625 |
|
18
|
| December 31, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2017 |
| ||||||||||
|
| Carrying Amount |
|
| Fair Value (a) |
|
| Carrying Amount |
|
| Fair Value (a) |
| ||||
Revolving Credit Facility Borrowings |
| $ | 79,149 |
|
| $ | 79,149 |
|
| $ | - |
|
| $ | - |
|
Senior Secured Term Loan (b) |
|
| 73,278 |
|
|
| 73,800 |
|
|
| 75,717 |
|
|
| 76,300 |
|
Total debt |
| $ | 152,427 |
|
| $ | 152,949 |
|
| $ | 75,717 |
|
| $ | 76,300 |
|
Total long-term portion of debt (b) |
| $ | 63,278 |
|
| $ | 63,800 |
|
| $ | 65,717 |
|
| $ | 66,300 |
|
|
|
|
|
15
On July 30, 2015,6, 2022, the Company entered into a thirdrefinanced its five-year term loan and the revolving credit facility with the execution of the sixth amended and restated asset-basedrevolving credit facility agreement (the “credit agreement”) with a bank syndicate comprised of thirteenten participants, which enables the Company to borrow up to $300$400 million ($450550 million during the heating season of December through April of each year) on a revolving credit facility for working capital purposes (subject to certain borrowing base limitations and coverage ratios), provides for a $100$165 million five-year senior secured term loan (the “Term(“Term Loan”), allows for the issuance of up to $100$25 million in letters of credit, and has a maturity date of July 30, 2020.6, 2027.
The Company can increase the revolving credit facility size by $100an additional $200 million without the consent of the bank group. However, the bank group is not obligated to fund the $100$200 million increase. If the bank group elects not to fund the increase, the Company can add additional lenders to the group, with the consent of the Agent (as defined in the credit agreement), which shall not be unreasonably withheld. Obligations under the third amended and restated credit facilityagreement are guaranteed by the Company and its subsidiaries and are secured by liens on substantially all of the Company’s assets, including accounts receivable, inventory, general intangibles, real property, fixtures and equipment.
All amounts outstanding under the thirdsixth amended and restated revolving credit facility become due and payable on the facility termination date of July 30, 2020.6, 2027. The Term Loan is repayable in quarterly payments of $2.5$4.1 million, the first of which was made December 30, 2022, plus an annual payment equal to 25%25% of the annual Excess Cash Flow as defined in the credit agreement (an amount not to exceed $15$8.5 million annually), less certain voluntary prepayments made during the year, with final payment at maturity.
The interest rate on In fiscal 2022 the thirdCompany repaid $4.9 million of additional loan repayments due to Excess Cash Flow related to fiscal 2021. Under the Company’s sixth amended and restated revolving credit facility, the next annual Excess Cash Flow payment will be applicable for fiscal year ending September 30, 2023.
The interest rate on the revolving credit facility and the Term Loanterm loan is based on a margin over LIBORAdjusted Term Secured Overnight Financing Rate ("SOFR") or a base rate. At December 31, 2017,June 30, 2023, the effective interest rate on the Term Loan was approximately 4.3% andterm loan (considering the effectiveimpact of interest rate onhedges) and revolving credit facility borrowings was approximately 4.5%.6.3% and 6.4%, respectively, compared to 4.7% and 2.6%, respectively at September 30, 2022.
The Commitment Feecommitment fee on the unused portion of the revolving credit facility is 0.30%0.30% from December through April, and 0.20%0.20% from May through November.
The third amended and restated credit agreement requires the Company to meet certain financial covenants, including a fixed charge coverage ratio (as defined in the credit agreement) of not less than 1.1 as long as the Term Loan is outstanding or revolving credit facility availability is less than 12.5%12.5% of the facility size. In addition, as long as the Term Loan is outstanding, a senior secured leverage ratio at any time cannot be more than 3.0 as calculated duringas of the quarters ending June or September, and at any time no more than 4.55.5 as calculated duringas of the quarters ending December or March.
Certain restrictions are also imposed by the sixth amended and restated credit agreement, including restrictions on the Company’s ability to incur additional indebtedness, to pay distributions to unitholders, to pay certain inter-company dividends or distributions, repurchase units, make investments, grant liens, sell assets, make acquisitions and engage in certain other activities.
At December 31, 2017, $73.8June 30, 2023, $152.6 million of the Term Loan was outstanding, $79.1$0.2 million was outstanding under the revolving credit facility, no$9.8 million hedge positions were secured under the credit agreement, and $7.3$3.1 million of letters of credit were issued and outstanding. At September 30, 2017, $76.32022, $165.0 million of the Term Loanterm loan was outstanding, no amount$20.3 million was outstanding under the revolving credit facility, $0.1 million ofwe did not have to provide collateral for our hedge positions were secured under the credit agreement and $48$5.1 million of letters of credit were issued and outstanding.
At December 31, 2017,June 30, 2023, availability was $185.8$218.0 million, and the Company was in compliance with the fixed charge coverage ratio and the senior secured leverage ratio.financial covenants. At September 30, 2017,2022, availability was $166.1$189.4 million, and the Company was in compliance with the fixed charge coverage ratio and the senior secured leverage ratio.financial covenants.
10)12) Income Taxes
At a special meeting held October 25, 2017, unitholders voted in favor of proposals to have the Company be treated as a corporation effective November 1, 2017, instead of a partnership, for federal income tax purposes (commonly referred to as a “check-the-box” election) along with amendments to our Partnership Agreement to effect such changes in income tax classification. For corporate subsidiaries of the Company, a consolidated Federal income tax return is filed. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recognized if, based on the weight of available evidence including historical tax losses, it is more likely than not that some or all of deferred tax assets will not be realized.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted into law. The Tax Reform Act is a complicated piece of legislation that, among other provisions, contains several key provisions which impact the Company, especially the reduction of the Federal corporate income tax rate from 35% to 21% effective January 1, 2018.
16
Given the significance and complexity of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.
As of December 31, 2017, the income tax benefit is based, in part, on a reasonable estimate of deferred tax balances as of the enactment of the Tax Reform Act. The estimate of such deferred tax balances is provisional. The provisional re-measurement of the deferred tax assets and liabilities resulted in an $11.5 million discrete tax benefit recorded in the quarter ended December 31, 2017. The provisional re-measurement amount is anticipated to change as data becomes available allowing more accurate scheduling of certain deferred tax assets and liabilities. We anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending September 30, 2018.
The effective tax rate for the quarter ended December 31, 2017 is negative 5.3%. The income tax provision for the quarter reflects the application of blended statutory rates for calendar years 2017 and 2018 to the quarter’s results, as well as recognition of the $11.5 million provisional tax benefit due to reduction in the Federal corporate tax rate. As a result of the tax reform, the Company’s net deferred tax liability will be realized at a lower statutory tax rate than when originally recorded, resulting in the aforementioned tax benefit. Excluding the impact of this net deferred tax liability related tax benefit our effective income tax rate decreased from 41.3% at December 31, 2016 to 34.7% at December 31, 2017 primarily due to the lower enacted Federal statutory tax rate.
The accompanying financial statements are reported on a fiscal year, however, the Company and its corporate subsidiaries file Federal and State income tax returns on a calendar year.
The current and deferred income tax (benefit) and expensesexpense for the three and nine months ended December 31, 2017,June 30, 2023 and 2016June 30, 2022 are as follows:
|
| Three Months Ended |
| |||||
|
| December 31, |
| |||||
(in thousands) |
| 2017 |
|
| 2016 |
| ||
Income before income taxes |
| $ | 28,670 |
|
| $ | 31,138 |
|
Current tax expense |
|
| 1,228 |
|
|
| 8,922 |
|
|
|
|
|
|
|
|
|
|
Deferred tax expense |
|
| 8,712 |
|
|
| 3,941 |
|
Deferred tax benefit - impact of tax reform |
|
| (11,452 | ) |
|
| - |
|
Total deferred tax (benefit) expense |
|
| (2,740 | ) |
|
| 3,941 |
|
Total tax (benefit) expense |
| $ | (1,512 | ) |
| $ | 12,863 |
|
|
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||
|
| June 30, |
|
| June 30, |
| |||||||||
(in thousands) |
| 2023 |
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Income (loss) before income taxes |
| $ | (33,196 | ) | $ | (14,353 | ) |
| $ | 72,100 |
|
| $ | 120,253 |
|
Current income tax expense (benefit) |
|
| (11,385 | ) |
| (7,058 | ) |
|
| 30,710 |
|
|
| 27,135 |
|
Deferred income tax expense (benefit) |
|
| 2,095 |
|
| 3,292 |
|
|
| (10,284 | ) |
|
| 7,837 |
|
Total income tax expense (benefit) |
| $ | (9,290 | ) | $ | (3,766 | ) |
| $ | 20,426 |
|
| $ | 34,972 |
|
19
The provision for income taxes differs from income taxes computed at the Federal statutory rate as a result of the following (in thousands):
|
| Three Months Ended |
| |||||
|
| December 31, |
| |||||
(in thousands) |
| 2017 |
|
| 2016 |
| ||
Income before income taxes |
| $ | 28,670 |
|
| $ | 31,138 |
|
|
|
|
|
|
|
|
|
|
Tax at Federal statutory rate |
|
| 7,024 |
|
|
| 10,898 |
|
Impact of Partnership loss not subject to federal income taxes |
|
| 51 |
|
|
| 146 |
|
State taxes net of federal benefit |
|
| 2,522 |
|
|
| 1,819 |
|
Deferred tax benefit - impact of tax reform |
|
| (11,452 | ) |
|
| - |
|
Other |
|
| 343 |
|
|
| - |
|
Total tax (benefit) expense |
| $ | (1,512 | ) |
| $ | 12,863 |
|
At December 31, 2017,June 30, 2023, we did notnot have unrecognized income tax benefits.
Our continuing practice is to recognize interest and penalties related to income tax matters as a component of income tax expense. We file U.S. Federal income tax returns and various state and local returns. A number of years may elapse before an uncertain tax position is audited and finally resolved. For our Federal income tax returns we have four tax years subject to examination. In our major state tax jurisdictions of New York, Connecticut and Pennsylvania, we have four years that are subject to
17
examination. In the state tax jurisdictionsjurisdiction of New Jersey we have five tax years that are subject to examination. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, based on our assessment of many factors, including past experience and interpretation of tax law, we believe that our provision for income taxes reflect the most probable outcome. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.
11)13) Supplemental Disclosure of Cash Flow Information
|
| Three Months Ended |
| |||||
|
| December 31, |
| |||||
(in thousands) |
| 2017 |
|
| 2016 |
| ||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Income taxes, net |
| $ | 437 |
|
| $ | 3,862 |
|
Interest |
| $ | 1,806 |
|
| $ | 2,164 |
|
|
| Nine Months Ended |
|
| |||||
Cash paid during the period for: |
| June 30, |
|
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| ||
Income taxes, net |
| $ | 12,986 |
|
| $ | 15,451 |
|
|
Interest |
| $ | 14,119 |
|
| $ | 7,813 |
|
|
12)14) Commitments and Contingencies
On April 18, 2017, a civil action was filed in the United States District Court for the Eastern District of New York, entitled M. Norman Donnenfeld v. Petro, Inc., Civil Action Number 2:17-cv-2310-JFB-SIL, against Petro, Inc. By amended complaint filed on August 15, 2017, the Plaintiff alleges he did not receive expected contractual benefits under his protected price plan contract when oil prices fell and asserts various claims for relief including breach of contract, violation of the New York General Business Law and fraud. The Plaintiff also seeks to have a class certified of similarly situated Petro customers who entered into protected price plan contracts and were denied the same contractual benefits. No class has yet been certified in this action. The Plaintiff seeks compensatory, punitive and other damages in unspecified amounts. On September 15, 2017, Petro filed a motion to dismiss the amended complaint as time-barred and for failure to state a cause of action. The motion was argued on January 18, 2018 and a decision is awaited. The Company believes the allegations lack merit and intends to vigorously defend the action; at this time we cannot assess the potential outcome or materiality of this matter.
The Company’s operations are subject to the operating hazards and risks normally incidental to handling, storing and transporting and otherwise providing for use by consumers hazardous liquids such as home heating oil and propane. In the ordinary course of business, the Company is a defendant in various legal proceedings and litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. We do not believe these matters, when considered individually or in the aggregate, could reasonably be expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.
The Company maintains insurance policies with insurers in amounts and with coverages and deductibles we believe are reasonable and prudent. However, the Company cannot assure that this insurance will be adequate to protect it from all material expenses related to current and potential future claims, legal proceedings and litigation, including the above mentioned action, as certain types of claims may be excluded from our insurance coverage. If we incur substantial liability and the damages are not covered by insurance, or are in excess of policy limits, or if we incur liability at a time when we are not able to obtain liability insurance, then our business, results of operations and financial condition could be materially adversely affected.
13)15) Earnings Per Limited Partner Unit
Income per limited partner unit is computed in accordance with FASB ASC 260-10-05 Earnings Per Share, Master Limited Partnerships (EITF 03-06), by dividingThe following table presents the limited partners’ interest in net income by the weighted average number of limited partner units outstanding. The pro forma nature of the allocation required by this standard provides that inand per unit data:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
Basic and Diluted Earnings Per Limited Partner: |
| June 30, |
|
| June 30, |
| ||||||||||
(in thousands, except per unit data) |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) |
| $ | (23,906 | ) |
| $ | (10,587 | ) |
| $ | 51,674 |
|
| $ | 85,281 |
|
Less General Partner’s interest in net income (loss) |
|
| (216 | ) |
|
| (93 | ) |
|
| 468 |
|
|
| 726 |
|
Net income (loss) available to limited partners |
|
| (23,690 | ) |
|
| (10,494 | ) |
|
| 51,206 |
|
|
| 84,555 |
|
Less dilutive impact of theoretical distribution of earnings * |
|
| — |
|
|
| — |
|
|
| 7,258 |
|
|
| 13,677 |
|
Limited Partner’s interest in net income (loss) |
| $ | (23,690 | ) |
| $ | (10,494 | ) |
| $ | 43,948 |
|
| $ | 70,878 |
|
Per unit data: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted net income (loss) available to limited partners |
| $ | (0.67 | ) |
| $ | (0.29 | ) |
| $ | 1.43 |
|
| $ | 2.24 |
|
Less dilutive impact of theoretical distribution of earnings * |
|
| — |
|
|
| — |
|
|
| 0.20 |
|
|
| 0.36 |
|
Limited Partner’s interest in net income (loss) |
| $ | (0.67 | ) |
| $ | (0.29 | ) |
| $ | 1.23 |
|
| $ | 1.88 |
|
Weighted average number of Limited Partner units outstanding |
|
| 35,603 |
|
|
| 36,781 |
|
|
| 35,725 |
|
|
| 37,739 |
|
* In any accounting period where the Company’s aggregate net income exceeds its aggregate distribution for such period, the Company is required to present net income per limited partnerLimited Partner unit as if all of the earnings for the periodsperiod were distributed, based on the terms of the Partnership agreement, regardless of whether those earnings would actually be distributed during a particular period from an economic or practical perspective. This allocation does not impact the Company’s overall net income or other financial results. However, for periods in which the Company’s aggregate net income exceeds its aggregate distributions for such period, it will have the impact of reducing the earnings per limited partner unit, as the calculation according to this standard result in a theoretical increased allocation of undistributed earnings to the general partner. In accounting periods where aggregate net income does not exceed aggregate distributions for such period, this standard does not have any impact on the Company’s net income per limited partner unit calculation. A separate and independent calculation for each quarter and year-to-date period is performed, in which the Company’s contractual participation rights are taken into account.
1820
The following presents the net income allocation and per unit data using this method for the periods presented:
|
| Three Months Ended |
| |||||
Basic and Diluted Earnings Per Limited Partner: |
| December 31, |
| |||||
(in thousands, except per unit data) |
| 2017 |
|
| 2016 |
| ||
Net income |
| $ | 30,182 |
|
| $ | 18,275 |
|
Less General Partner’s interest in net income |
|
| 175 |
|
|
| 105 |
|
Net income available to limited partners |
|
| 30,007 |
|
|
| 18,170 |
|
Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60 |
|
| 4,740 |
|
|
| 2,446 |
|
Limited Partner’s interest in net income under FASB ASC 260-10-45-60 |
| $ | 25,267 |
|
| $ | 15,724 |
|
Per unit data: |
|
|
|
|
|
|
|
|
Basic and diluted net income available to limited partners |
| $ | 0.53 |
|
| $ | 0.33 |
|
Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60 |
|
| 0.08 |
|
|
| 0.05 |
|
Limited Partner’s interest in net income under FASB ASC 260-10-45-60 |
| $ | 0.45 |
|
| $ | 0.28 |
|
Weighted average number of Limited Partner units outstanding |
|
| 55,887 |
|
|
| 55,887 |
|
Quarterly Distribution Declared
In January 2018,July 2023, we declared a quarterly distribution of $0.11$0.1625 per unit, or $0.44$0.65 per unit on an annualized basis, on all Common Units with respect to the firstthird quarter of fiscal 2018, payable2023, paid on February 6, 2018,July 31, 2023, to holders of record on January 29, 2018. In accordance with our Partnership Agreement, theJuly 24, 2023. The amount of distributions in excess of the minimum quarterly distribution of $0.0675,$0.0675 are distributed 90% to Common Unit holders and 10% to the General Partner unit holders (until certain distribution levels are met),in accordance with our Partnership Agreement, subject to the management incentive compensation plan. As a result, $6.1$5.8 million will bewas paid to the Common Unit holders, $0.2$0.3 million to the General Partner unit holders (including $0.1$0.3 million of incentive distribution as provided in our Partnership Agreement) and $0.1$0.3 million to management pursuant to the management incentive compensation plan which provides for certain members of management to receive incentive distributions that would otherwise be payable to the General Partner.
19
21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statement Regarding Forward-Looking Disclosure
This Quarterly Report on Form 10-Q (this “Report”) includes “forward-looking statements” which represent our expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effectimpact of weather conditionsgeopolitical events, such as the war in the Ukraine, and its impact on our financial performance,wholesale product cost volatility, the price and supply of the products that we sell, our ability to purchase sufficient quantities of product to meet our customer’s needs, rapid increases in levels of inflation approaching 40-year highs, uncertain economic conditions, the consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, the effect of weather conditions on our financial performance, our ability to obtain new customers and retain existing customers, our ability to make strategic acquisitions, the impact of litigation, our ability to contract for our currentnatural gas conversions, the impact of the novel coronavirus, or COVID-19, pandemic and future supply needs, natural gas conversions,global health pandemics, on US and global economies, future union relations and the outcome of current and future union negotiations, the impact of current and future governmental regulations, including climate change, environmental, health, and safety regulations, the ability to attract and retain employees, customer credit worthiness, counterparty credit worthiness, marketing plans, general economic conditionscyber-attacks, increases in interest rates, global supply chain issues, labor shortages and new technology.technology, including alternative methods for heating and cooling residences. All statements other than statements of historical facts included in this Report including, without limitation, the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are forward-looking statements. Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “seek,” “estimate,” and similar expressions are intended to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct, and actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, those set forth in this Report under the headings “Risk Factors” and “Business Strategy.“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our Fiscal 2022 Form 10-K under Part I Item 1A “Risk Factors.” Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in this Report.Report and in our Fiscal 2022 Form 10-K. All subsequent written and oral forward-looking statements attributable to Starthe Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. Unless otherwise required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Report.Report.
Additional Cash Investment into an Irrevocable Trust – Captive Insurance CompanyLiquid Product Price Volatility
On October 11, 2017 we deposited $34.2 millionVolatility, which is reflected in the wholesale price of cash into an irrevocable trust to secure certain liabilities for our captive insurance companyliquid products, including home heating oil, propane and several days later, $36.6 million of letters of credit were cancelled that previously had secured these liabilities. The cash deposited into the trust is shown as Captive insurance collateral and, correspondingly, reduced the amount of cashmotor fuels, has a larger impact on our balance sheet. We believe thatbusiness when prices rise. Home heating oil consumers are sensitive to heating cost increases, and this investment into the irrevocable trust will lower our letter of credit fees, increase interest income on invested cash balancesoften leads to customer conservation and provide us with certain tax advantages attributable to a captive insurance company.increased gross customer losses. As a resultcommodity, the price of these transactions, our abilityhome heating oil is generally impacted by many factors, including economic and geopolitical forces, and the war in the Ukraine, and is closely linked to borrow from our bank group increasedthe price of diesel fuel. The volatility in the wholesale cost of diesel fuel as measured by $2.4 million, as the decrease in letters of credit was greater than the cash deposit.
Change in Federal Income Tax Classification and Name Change
At a special meeting held October 25, 2017, unitholders voted in favor of proposals to have the Company be treated as a corporation, instead of a partnership, for federal income tax purposes (commonly referred to as a “check-the-box” election) along with amendments to our limited partnership agreement to effect such changes in income tax classification. In addition, we changed our name to Star Group, L.P., and will continue to trade on the New York StockMercantile Exchange under the ticker “SGU.” The name change was made to more closely align our name with the scope of products and services we offer.
We believe that, by being treated as a corporation for federal income tax purposes, instead of a partnership, we will (i) eliminate unitholders’ out-of-pocket tax burden (“phantom income”NYMEX”) arising from allocating taxable income to them without making corresponding cash distributions; (ii) potentially broaden our base of interested investors; (iii) enable us to fully deduct for tax purposes certain public company-related expenses; and (iv) lower our administrative expenses by eliminating Schedules K-1, which will no longer be necessary. For tax years after December 31, 2017, unitholders will receive a Form 1099-DIV in lieu of a Schedule K-1 as has been (or will be) provided for. We will remain a Delaware limited partnership for state law purposes and the distribution provisions under our limited partnership agreement, including the incentive distributions, will not change.
Income Taxes
New Federal Income Tax Legislation
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted into law. The Tax Reform Act contains several key tax provisions that will impact the Company, including the reduction of the corporate Federal income tax rate from 35% to 21% effective January 1, 2018.
20
At December 31, 2017, the Company recorded an $11.5 million discrete income tax benefit, for the re-measurement of deferred tax assets and liabilities due to the changefiscal years ending September 30, 2019, through 2023, on a quarterly basis, is illustrated in the Federal corporate income tax rate thatfollowing chart (price per gallon):
|
| Fiscal 2023 (a) |
|
| Fiscal 2022 |
|
| Fiscal 2021 |
|
| Fiscal 2020 |
|
| Fiscal 2019 |
| |||||||||||||||||||||||||
Quarter Ended |
| Low |
|
| High |
|
| Low |
|
| High |
|
| Low |
|
| High |
|
| Low |
|
| High |
|
| Low |
|
| High |
| ||||||||||
December 31 |
| $ | 2.78 |
|
| $ | 4.55 |
|
| $ | 2.06 |
|
| $ | 2.59 |
|
| $ | 1.08 |
|
| $ | 1.51 |
|
| $ | 1.86 |
|
| $ | 2.05 |
|
| $ | 1.66 |
|
| $ | 2.44 |
|
March 31 |
|
| 2.61 |
|
|
| 3.55 |
|
|
| 2.36 |
|
|
| 4.44 |
|
|
| 1.46 |
|
|
| 1.97 |
|
|
| 0.95 |
|
|
| 2.06 |
|
|
| 1.70 |
|
|
| 2.04 |
|
June 30 |
|
| 2.23 |
|
|
| 2.73 |
|
|
| 3.27 |
|
|
| 5.14 |
|
|
| 1.77 |
|
|
| 2.16 |
|
|
| 0.61 |
|
|
| 1.22 |
|
|
| 1.78 |
|
|
| 2.12 |
|
September 30 |
|
| — |
|
|
| — |
|
|
| 3.13 |
|
|
| 4.01 |
|
|
| 1.91 |
|
|
| 2.34 |
|
|
| 1.08 |
|
|
| 1.28 |
|
|
| 1.75 |
|
|
| 2.08 |
|
22
Income Taxes
Book versus Tax Deductions
The amount of cash flow that we generategenerated in any given year depends upon a variety of factors including the amount of cash income taxes that we are required, to pay, which will increase as tax depreciation and amortization decreases. The amount of depreciation and amortization that we deduct for book (i.e., financial reporting) purposes will differ from the amount that the Company can deduct for Federal tax purposes. The table below compares the estimated depreciation and amortization for book purposes to the amount that we expect to deduct for Federal tax purposes, based on currently owned assets. WeWhile we file our tax returns based on a calendar year. Theyear, the amounts below are based on our September 30 fiscal year.year, and the tax amounts include any 100% bonus depreciation available for fixed assets purchased. However, this table does not include any forecast of future annual capital purchases.
Estimated Depreciation and Amortization Expense
(In thousands) Fiscal Year |
| Book |
|
| Tax |
| ||
2018 |
| $ | 30,770 |
|
| $ | 28,976 |
|
2019 |
|
| 26,794 |
|
|
| 22,160 |
|
2020 |
|
| 23,000 |
|
|
| 18,703 |
|
2021 |
|
| 17,948 |
|
|
| 16,475 |
|
2022 |
|
| 14,542 |
|
|
| 14,674 |
|
2023 |
|
| 12,693 |
|
|
| 13,034 |
|
(In thousands) Fiscal Year |
| Book |
| Tax |
| ||
2023 |
| $ | 31,690 |
| $ | 30,401 |
|
2024 |
|
| 26,672 |
|
| 21,614 |
|
2025 |
|
| 22,324 |
|
| 20,978 |
|
2026 |
|
| 17,938 |
|
| 20,199 |
|
2027 |
|
| 15,984 |
|
| 18,352 |
|
2028 |
|
| 12,360 |
|
| 17,086 |
|
Non-Deductible Partnership Expenses
Through October 31, 2017 the Company incurred certain expenses at the partnership level that are not deductible for Federal or state income tax purposes by our corporate subsidiaries. As a result, our effective tax rate could differ from the statutory rate that would be applicable if such expenses were deductible.
Seasonality
The following matters should be considered in analyzing our financial results. Our fiscal year ends on September 30. All references to quarters and years respectively in this document are to the fiscal quarters and years unless otherwise noted. The seasonal nature of our business has resulted, on average, during the last five years, in the sale of approximately 30% of our volume of home heating oil and propane in the first fiscal quarter and 50% of our volume in the second fiscal quarter, the peak heating season. We generally realize net income in both of these quarters and net losses during the quarters ending June and September. In addition, sales volume typically fluctuates from year to year in response to variations in weather, wholesale energy prices and other factors.
Degree Day
A “degree day” is an industry measurement of temperature designed to evaluate energy demand and consumption. Degree days are based on how far the average daily temperature departs from 65°F. Each degree of temperature above 65°F is counted as one cooling degree day, and each degree of temperature below 65°F is counted as one heating degree day. Degree days are accumulated each day over the course of a year and can be compared to a monthly or a long-term (multi-year) average to see if a month or a year was warmer or cooler than usual. Degree days are officially observed by the National Weather Service.
Every ten years, the National Oceanic and Atmospheric Administration (“NOAA”) computes and publishes average meteorological quantities, including the average temperature for the last 30 years by geographical location, and the corresponding degree days. The latest and most widely used data covers the years from 1981 to 2010. Our calculations of normal weather are based on these published 30 year averages for heating degree days, weighted by volume for the locations where we have existing operations.
Weather Hedge Contracts
Weather conditions have a significant impact on the demand for home heating oil and propane because certain customers depend on these products principally for space heating purposes. Actual weather conditions may vary substantially from year to year, significantly affecting ourthe Company’s financial performance. To partially mitigate the adverse effect of warm weather on cash flow, we have used weather hedging contracts for a number of years with several providers.
21
During both fiscal 2012 and 2016, we collected $12.5 million for amounts due under our weather hedge contracts and recorded a corresponding credit of $12.5 million that reduced delivery and branch expenses each respective fiscal year. While temperatures were 12.4% warmer than normal (as defined by NOAA) in fiscal 2017, we did not receive a payout under our weather hedge contract because the Payment Thresholds were not met under the contract.
We have purchased weather hedge contracts for fiscal years 2018 and 2019. Under these contracts, we are entitled to a payment if the total number of degree days within the hedge period is less than the ten year average. Theapplicable “Payment Thresholds,” or strikes, are setstrikes. For fiscal 2022 and 2023 we entered into weather hedging contracts under which we were entitled to a payment capped at various levels. In addition,$12.5 million if degree days were less than the Payment Threshold and we will bewere obligated to make aan annual payment capped at $5.0 million if degree days exceed the ten year average.Payment Threshold. The hedge period runsran from November 1 through March 31, taken as a whole, for each respective fiscal year. The temperatures experienced during the hedge period through June 30, 2023 and June 30, 2022 were warmer than the strikes in the weather hedge contracts. As a result at June 30, 2023 and June 30, 2022, the Company reduced delivery and branch expenses for the gains realized under those contracts of $12.5 million and $1.1 million, respectively. The amounts were received in full in April 2023 and April 2022, respectively.
For fiscal 2018, the maximum that2024, the Company can receive is $17.5 million andentered into a weather hedge contract with the maximum that the Company would be obligated to pay is $5.0 million. For fiscal 2019, thesimilar hedge period described above. The maximum that the Company can receive is $12.5 million annually and the maximum that the Company would be obligatedhas no obligation to pay is $5.0 million. If the Company were to havecounterparty beyond the same weather conditions in fiscal 2018 and 2019 as took place in fiscal 2017, the Company would receive $4.4 million in fiscal 2018 and $8.4 million in fiscal 2019. If the Company were to have the same weather conditions in fiscal 2018 and 2019 as took place in fiscal 2014 and 2015, the company would pay $5.0 million in fiscal 2018 and 2019, respectively.
At December 31, 2017, we have recorded a liability of $3.1 million for an expected payment under our weather hedge contracts and have increased delivery and branch expense by that amount as temperatures in November and December were 13.4% colder thaninitial premium should degree days exceed the Payment Threshold.
Per Gallon Gross Profit Margins
We believe home heating oil and propane margins should be evaluated on a cents per gallon basis (beforebefore the effects of increases or decreases in the fair value of derivative instruments),instruments, as we believe that realizedsuch per gallon margins should not includeare best at showing profit trends in the underlying business without the impact of non-cash changes in the market value of hedges before the settlement of the underlying transaction.
A significant portion of our home heating oil volume is sold to individual customers under an arrangement pre-establishing a ceiling price or fixed price for home heating oil over a fixedset period of time, generally twelve to twenty-four months (“price-protected” customers). When these price-protected customers agree to purchase home heating oil from us for the next heating season, we purchase option contracts, swaps and futures contracts for a substantial majority of the heating oil that we expect to sell to these customers. The amount of home heating oil volume that we hedge per price-protected customer is based upon the estimated fuel consumption per average customer per month. In the event that the actual usage exceeds the amount of the hedged volume on a monthly basis, we may be required to obtain additional volume at unfavorable costs. In addition, should actual usage in any month be less than the hedged volume, our hedging costs and losses could be greater, thus reducing expected margins.
At December 31, 2017, we had 83.9 million gallons of home heating oil hedged for our ceiling customers and 17.9 million gallons for our fixed priced customers. Over 98% of these hedges were at their strike price, which reduces the potential for per gallon margin expansion for these customers unless the price for home heating oil declines. In addition, the percentage of customers on variable pricing has decreased (and the percentage of customers who have elected price protection has increased), which may adversely impact home heating oil margins in fiscal 2018 as the per gallon margins realized from price–protected customers generally are less than variable priced residential customers.Derivatives
Impact on Liquidity of Wholesale Product Cost Volatility
Our liquidity is adversely impacted in times of increasing wholesale product costs, as we must use more cash to fund our hedging requirements as well as the increased levels of accounts receivable and inventory. Our liquidity can also be adversely impacted by sudden and sharp decreases in wholesale product costs, due to the increased margin requirements for futures contracts and collateral requirements for options and swaps that we use to manage market risks.
22
Home Heating Oil Price Volatility
Volatility, which is reflected in the wholesale price of home heating oil, has a larger impact on our business when prices rise, as consumer price sensitivity to heating costs increases, often leading to increased gross customer losses. As a commodity, the price of home heating oil is generally impacted by many factors, including economic and geopolitical forces. The price of home heating oil is closely linked to the price refiners pay for crude oil, which is the principal cost component of home heating oil. The volatility in the wholesale cost of home heating oil, as measured by the New York Mercantile Exchange (“NYMEX”), for the fiscal years ending September 30, 2014, through 2018, on a quarterly basis, is illustrated in the following chart (price per gallon):
|
| Fiscal 2018 |
|
| Fiscal 2017 |
|
| Fiscal 2016 |
|
| Fiscal 2015 |
|
| Fiscal 2014 |
| |||||||||||||||||||||||||
Quarter Ended |
| Low |
|
| High |
|
| Low |
|
| High |
|
| Low |
|
| High |
|
| Low |
|
| High |
|
| Low |
|
| High |
| ||||||||||
December 31 |
| $ | 1.74 |
|
| $ | 2.08 |
|
| $ | 1.39 |
|
| $ | 1.70 |
|
| $ | 1.08 |
|
| $ | 1.61 |
|
| $ | 1.85 |
|
| $ | 2.66 |
|
| $ | 2.84 |
|
| $ | 3.12 |
|
March 31 |
|
| - |
|
|
| - |
|
|
| 1.49 |
|
|
| 1.70 |
|
|
| 0.87 |
|
|
| 1.26 |
|
|
| 1.62 |
|
|
| 2.30 |
|
|
| 2.89 |
|
|
| 3.28 |
|
June 30 |
|
| - |
|
|
| - |
|
|
| 1.37 |
|
|
| 1.65 |
|
|
| 1.08 |
|
|
| 1.57 |
|
|
| 1.68 |
|
|
| 2.02 |
|
|
| 2.85 |
|
|
| 3.05 |
|
September 30 |
|
| - |
|
|
| - |
|
|
| 1.45 |
|
|
| 1.86 |
|
|
| 1.26 |
|
|
| 1.53 |
|
|
| 1.38 |
|
|
| 1.84 |
|
|
| 2.65 |
|
|
| 2.98 |
|
Derivatives
FASB ASC 815-10-05 Derivatives and Hedging requires that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities. To the extent our interest rate derivative instruments designated as cash flow hedges are effective, as defined under this guidance, changes in fair value are recognized in other comprehensive income (loss) until the forecasted hedged item is recognized in earnings. We have elected not to designate our commodity derivative instruments as hedging instruments under this guidance and, as a result, the changes in fair value of the derivative instruments are recognized in our statement of operations. Therefore, we experience volatility in earnings as outstanding derivative instruments are marked to market
23
and non-cash gains and losses are recorded prior to the sale of the commodity to the customer. The volatility in any given period related to unrealized non-cash gains or losses on derivative instruments can be significant to our overall results. However, we ultimately expect those gains and losses to be offset by the cost of product when purchased.
Customer Attrition
We measure net customer attrition on an ongoing basis for our full service residential and commercial home heating oil and propane customers. Net customer attrition is the difference between gross customer losses and customers added through marketing efforts. Customers added through acquisitions are not included in the calculation of gross customer gains. However, additional customers that are obtained through marketing efforts or lost at newly acquired businesses are included in these calculations.calculations from the point of closing going forward. Customer attrition percentage calculations include customers added through acquisitions in the denominators of the calculations on a weighted average basis.basis from the closing date. Gross customer losses are the result of a number of factors, including price competition, move-outs, credit losses, and conversionconversions to natural gas.gas and service disruptions. When a customer moves out of an existing home, we count the “move out” as a loss, and, if we are successful in signing up the new homeowner, the “move in” is treated as a gain. The impact of certain geopolitical forces, particularly the war in the Ukraine, on liquid product prices could increase future attrition due to higher losses from credit related issues.
Customer gains and losses of home heating oil and propane customers
|
| Fiscal Year Ended |
|
| Fiscal Year Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
| Net |
| ||||||||||||
|
| Gross Customer |
|
| Gains / |
|
| Gross Customer |
|
| Gains / |
|
| Gross Customer |
|
| Gains / |
|
| Gross Customer |
|
| Gains / |
|
| Gross Customer |
|
| Gains / |
|
| Gross Customer |
|
| Gains / |
| ||||||||||||||||||||||||||||||||||||
|
| Gains |
|
| Losses |
|
| (Attrition) |
|
| Gains |
|
| Losses |
|
| (Attrition) |
|
| Gains |
|
| Losses |
|
| (Attrition) |
|
| Gains |
|
| Losses |
|
| (Attrition) |
|
| Gains |
|
| Losses |
|
| (Attrition) |
|
| Gains |
|
| Losses |
|
| (Attrition) |
| ||||||||||||||||||
First Quarter |
|
| 24,700 |
|
|
| 19,900 |
|
|
| 4,800 |
|
|
| 24,300 |
|
|
| 19,100 |
|
|
| 5,200 |
|
|
| 22,800 |
|
|
| 24,200 |
|
|
| (1,400 | ) |
|
| 26,500 |
|
|
| 19,500 |
|
|
| 7,000 |
|
|
| 19,800 |
|
|
| 18,500 |
|
|
| 1,300 |
|
|
| 19,100 |
|
|
| 19,900 |
|
|
| (800 | ) |
Second Quarter |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,200 |
|
|
| 16,400 |
|
|
| (3,200 | ) |
|
| 13,700 |
|
|
| 19,300 |
|
|
| (5,600 | ) |
|
| 9,300 |
|
|
| 18,100 |
|
|
| (8,800 | ) |
|
| 12,700 |
|
|
| 17,300 |
|
|
| (4,600 | ) |
|
| 12,600 |
|
|
| 17,800 |
|
|
| (5,200 | ) |
Third Quarter |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,000 |
|
|
| 12,700 |
|
|
| (4,700 | ) |
|
| 7,400 |
|
|
| 14,100 |
|
|
| (6,700 | ) |
|
| 5,300 |
|
|
| 12,600 |
|
|
| (7,300 | ) |
|
| 6,400 |
|
|
| 14,300 |
|
|
| (7,900 | ) |
|
| 6,700 |
|
|
| 12,300 |
|
|
| (5,600 | ) |
Fourth Quarter |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,400 |
|
|
| 16,500 |
|
|
| (4,100 | ) |
|
| 11,400 |
|
|
| 21,200 |
|
|
| (9,800 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,400 |
|
|
| 15,800 |
|
|
| (4,400 | ) |
|
| 9,500 |
|
|
| 14,900 |
|
|
| (5,400 | ) |
Total |
|
| 24,700 |
|
|
| 19,900 |
|
|
| 4,800 |
|
|
| 57,900 |
|
|
| 64,700 |
|
|
| (6,800 | ) |
|
| 55,300 |
|
|
| 78,800 |
|
|
| (23,500 | ) |
|
| 41,100 |
|
|
| 50,200 |
|
|
| (9,100 | ) |
|
| 50,300 |
|
|
| 65,900 |
|
|
| (15,600 | ) |
|
| 47,900 |
|
|
| 64,900 |
|
|
| (17,000 | ) |
23
Customer gains (attrition) as a percentage of home heating oil and propane customer base
|
| Fiscal Year Ended |
|
| Fiscal Year Ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
|
| Net |
| ||||||||||||
|
| Gross Customer |
|
| Gains / |
|
| Gross Customer |
|
| Gains / |
|
| Gross Customer |
|
| Gains / |
|
| Gross Customer |
|
| Gains / |
|
| Gross Customer |
|
| Gains / |
|
| Gross Customer |
|
| Gains / |
| ||||||||||||||||||||||||||||||||||||
|
| Gains |
|
| Losses |
|
| (Attrition) |
|
| Gains |
|
| Losses |
|
| (Attrition) |
|
| Gains |
|
| Losses |
|
| (Attrition) |
|
| Gains |
|
| Losses |
|
| (Attrition) |
|
| Gains |
|
| Losses |
|
| (Attrition) |
|
| Gains |
|
| Losses |
|
| (Attrition) |
| ||||||||||||||||||
First Quarter |
|
| 5.4 | % |
|
| 4.4 | % |
|
| 1.0 | % |
|
| 5.6 | % |
|
| 4.4 | % |
|
| 1.2 | % |
|
| 5.0 | % |
|
| 5.3 | % |
|
| (0.3 | %) |
|
| 6.4 | % |
|
| 4.7 | % |
|
| 1.7 | % |
|
| 4.7 | % |
|
| 4.4 | % |
|
| 0.3 | % |
|
| 4.4 | % |
|
| 4.6 | % |
|
| (0.2 | %) |
Second Quarter |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3.0 | % |
|
| 3.7 | % |
|
| (0.7 | %) |
|
| 3.0 | % |
|
| 4.2 | % |
|
| (1.2 | %) |
|
| 2.2 | % |
|
| 4.3 | % |
|
| (2.1 | %) |
|
| 3.0 | % |
|
| 4.1 | % |
|
| (1.1 | %) |
|
| 2.9 | % |
|
| 4.1 | % |
|
| (1.2 | %) |
Third Quarter |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1.8 | % |
|
| 2.9 | % |
|
| (1.1 | %) |
|
| 1.6 | % |
|
| 3.1 | % |
|
| (1.5 | %) |
|
| 1.3 | % |
|
| 3.1 | % |
|
| (1.8 | %) |
|
| 1.5 | % |
|
| 3.4 | % |
|
| (1.9 | %) |
|
| 1.3 | % |
|
| 2.6 | % |
|
| (1.3 | %) |
Fourth Quarter |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2.7 | % |
|
| 3.6 | % |
|
| (0.9 | %) |
|
| 2.5 | % |
|
| 4.6 | % |
|
| (2.1 | %) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.7 | % |
|
| 3.7 | % |
|
| (1.0 | %) |
|
| 2.1 | % |
|
| 3.3 | % |
|
| (1.2 | %) |
Total |
|
| 5.4 | % |
|
| 4.4 | % |
|
| 1.0 | % |
|
| 13.1 | % |
|
| 14.6 | % |
|
| (1.5 | %) |
|
| 12.1 | % |
|
| 17.2 | % |
|
| (5.1 | %) |
|
| 9.9 | % |
|
| 12.1 | % |
|
| (2.2 | %) |
|
| 11.9 | % |
|
| 15.6 | % |
|
| (3.7 | %) |
|
| 10.7 | % |
|
| 14.6 | % |
|
| (3.9 | %) |
For the threenine months ended December 31, 2017,June 30, 2023, the Company gained 4,800lost 9,100 accounts (net), or 1.0%,2.2% of ourits home heating oil and propane customer base, compared to 5,20011,200 accounts gainedlost (net), or 1.2%2.7% of its home heating and oil propane customer base in the prior year comparable period. Gross customer gains were 2,200 more than the prior year's comparable period because we were able to take advantage of certain market conditions with regard to physical supply. Gross customer losses were 100 more primarily due to product prices, customer credit cancellations and fuel conversions.
During the nine months ended June 30, 2023, we estimate that we lost 1.3% of our home heating oil and propane customer base, during the three months ended December 31, 2016. Our gross customer gains were 400 accounts higher than the prior year’s comparable period and our gross customer losses were also 800 accounts higher.
During the three months ended December 31, 2017, we estimate that we lost 0.3% of our home heating oil accounts to natural gas conversions versus 0.3%1.3% for the threenine months ended December 31, 2016,June 30, 2022 and 0.5%1.0% for the threenine months ended December 31, 2015.June 30, 2021. Losses to natural gas in our footprint for the heating oil and propane industry could be greater or less than the Company’s estimates. Conversions
Acquisitions
The timing of acquisitions and the types of products sold by acquired companies impact year-over-year comparisons. During fiscal year 2023 through June 30, 2023, the Company acquired two heating oil dealers. During fiscal 2022 the Company acquired five
24
heating oil dealers. The following tables detail the Company’s acquisition activity and the associated volume sold during the 12-month period prior to natural gas maythe date of acquisition.
(in thousands of gallons) |
|
|
|
|
|
|
|
|
|
|
| |||
Fiscal 2023 Acquisitions |
| |||||||||||||
Acquisition Number |
| Month of Acquisition |
| Home Heating Oil and Propane |
|
| Other Petroleum Products |
|
| Total |
| |||
1 |
| October |
|
| 556 |
|
|
| 403 |
|
|
| 959 |
|
2 |
| November |
|
| 494 |
|
|
| — |
|
|
| 494 |
|
|
|
|
|
| 1,050 |
|
|
| 403 |
|
|
| 1,453 |
|
(in thousands of gallons) |
|
|
|
|
|
|
|
|
|
|
| |||
Fiscal 2022 Acquisitions |
| |||||||||||||
Acquisition Number |
| Month of Acquisition |
| Home Heating Oil and Propane |
|
| Other Petroleum Products |
|
| Total |
| |||
1 |
| October |
|
| 437 |
|
|
| 48 |
|
|
| 485 |
|
2 |
| December |
|
| 741 |
|
|
| — |
|
|
| 741 |
|
3 |
| December |
|
| 1,768 |
|
|
| — |
|
|
| 1,768 |
|
4 |
| March |
|
| 1,225 |
|
|
| 446 |
|
|
| 1,671 |
|
5 |
| April |
|
| 3,678 |
|
|
| 166 |
|
|
| 3,844 |
|
|
|
|
|
| 7,849 |
|
|
| 660 |
|
|
| 8,509 |
|
Sale of Certain Assets
In October 2022 we sold certain assets, which included a customer list of approximately 6,500 customers, for $2.7 million (including a deferred purchase price of $0.5 million). The following table details sales generated from the assets sold:
| Years Ended September 30, |
| |||||||||
(in thousands) | 2022 |
|
| 2021 |
|
| 2020 |
| |||
Volume: |
|
|
|
|
|
|
|
| |||
Home heating oil and propane |
| 2,147 |
|
|
| 2,163 |
|
|
| 2,345 |
|
Motor fuel and other petroleum products |
| 27 |
|
|
| 37 |
|
|
| 38 |
|
Sales: |
|
|
|
|
|
|
|
| |||
Petroleum products | $ | 9,355 |
|
| $ | 6,102 |
|
| $ | 6,524 |
|
Installations and services |
| 1,323 |
|
|
| 1,384 |
|
|
| 1,292 |
|
Total Sales | $ | 10,678 |
|
| $ | 7,486 |
|
| $ | 7,816 |
|
Protected Price Account Renewals
A substantial majority of the Company’s price-protected customers have agreements with us that are subject to annual renewal in the period between April and November of each fiscal year. If a significant number of these customers elect not to renew their price-protected agreements with us and do not continue as it remains less expensive thanour customers under a variable price-plan, the Company’s near term profitability, liquidity and cash flow will be adversely impacted.
Seasonality
The Company’s fiscal year ends on September 30. All references to quarters and years, respectively, in this document are to the fiscal quarters and fiscal years unless otherwise noted. The seasonal nature of our business has resulted, on average, during the last five years, in the sale of approximately 30% of the volume of home heating oil and propane in the first fiscal quarter and 50% of the volume in the second fiscal quarter, the peak heating season. Approximately 25% of the volume of motor fuel and other petroleum products is sold in each of the four fiscal quarters. We generally realize net income during the quarters ending December and March and net losses during the quarters ending June and September. In addition, sales volume typically fluctuates from year to year in response to variations in weather, wholesale energy prices and other factors.
Degree Day
A “degree day” is an industry measurement of temperature designed to evaluate energy demand and consumption. Degree days are based on an equivalent BTU basis.how far the average daily temperature departs from 65°F. Each degree of temperature above 65°F is counted as one cooling degree day, and each degree of temperature below 65°F is counted as one heating degree day. Degree days are accumulated each day over the course of a year and can be compared to a monthly or a long-term (multi-year) average to see if a month or a year was warmer or cooler than usual. Degree days are officially observed by the National Weather Service.
2425
Every ten years, the National Oceanic and Atmospheric Administration (“NOAA”) computes and publishes average meteorological quantities, including the average temperature for the last 30 years by geographical location, and the corresponding degree days. The latest and most widely used data covers the years from 1991 to 2020. Our calculations of “normal” weather are based on these published 30 year averages for heating degree days, weighted by volume for the locations where we have existing operations.
Consolidated Results of Operations
The following is a discussion of the consolidated results of operations of the Company and its subsidiaries and should be read in conjunction with the historical financial and operating data and Notes thereto included elsewhere in this Quarterly Report.
26
Three Months Ended December 31, 2017June 30, 2023
Compared to the Three Months Ended December 31, 2016June 30, 2022
Volume
For the three months ended December 31, 2017,June 30, 2023, retail volume of home heating oil and propane increasedsold decreased by 3.910.6 million gallons, or 3.9 %,26.2%, to 103.430.1 million gallons, compared to 99.540.7 million gallons for the three months ended December 31, 2016.June 30, 2022. For those locations where the Companywe had existing operations during both periods, which we sometimes refer to as the “base business” (i.e., excluding acquisitions), temperatures (measured on a heating degree day basis) for the three months ended December 31, 2017June 30, 2023 were 5.5% colder12.3% warmer than the three months ended December 31, 2016June 30, 2022 and 5.8%19.4% warmer than normal, as reported by NOAA due to a record warm temperatures in October 2017.NOAA. For the twelve months ended December 31, 2017,June 30, 2023, net customer attrition for the base business was 1.6%3.1%. The impact of fuel conservation, along with any period-to-period differences in delivery scheduling, the timing of accounts added or lost during the fiscal years, equipment efficiency, and other volume variances not otherwise described, are included in the chart below under the heading “Other.” An analysis of the change in the retail volume of home heating oil and propane, which is based on management’s estimates, sampling, and other mathematical calculations and certain assumptions, is found below:
(in millions of gallons) | Heating Oil
| |||
Volume - Three months ended |
| |||
|
| ) | ||
Impact of |
| ) | ||
|
|
| ||
| ( | ) | ||
|
| ) | ||
Change | (10.6 | ) | ||
Volume - Three months ended |
|
|
|
The following chart sets forth the percentage by volume of total home heating oil sold to residential variable-price customers, residential price-protected customers and commercial/industrial/other customers for the three months ended December 31, 2017June 30, 2023, compared to the three months ended December 31, 2016:June 30, 2022:
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
Customers |
| December 31, 2017 |
|
| December 31, 2016 |
|
| June 30, |
|
| June 30, |
| ||||
Residential Variable |
|
| 42.7 | % |
|
| 43.2 | % |
|
| 39.9 | % |
|
| 41.9 | % |
Residential Price-Protected |
|
| 44.7 | % |
|
| 44.1 | % | ||||||||
Residential Price-Protected (Ceiling and Fixed Price) |
|
| 46.4 | % |
|
| 46.5 | % | ||||||||
Commercial/Industrial |
|
| 12.6 | % |
|
| 12.7 | % |
|
| 13.7 | % |
|
| 11.6 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Volume of motor fuel and other petroleum products increasedsold decreased by 1.32.2 million gallons, or 4.3%5.8%, to 30.735.9 million gallons for the three months ended December 31, 2017, largely dueJune 30, 2023, compared to acquisitions.38.1 million gallons for the three months ended June 30, 2022.
Product Sales
For the three months ended December 31, 2017,June 30, 2023, product sales increased $50.4decreased by $134.6 million, or 15.9%37.6%, to $366.7$223.6 million, compared to $316.3$358.2 million for the three months ended December 31, 2016, largelyJune 30, 2022, due to an increasea decrease in in wholesale product costs of $0.2623 per gallon, or 16.9% and an increase total volume sold of 4.0%16.4% and a decrease in average selling prices. Selling prices decreased largely due to a decrease in wholesale product cost of $1.1292 per gallon, or 30.6%. Product volumes and wholesale product cost include heating oil, propane, motor fuels and other petroleum products.
Installations and ServicesService
For the three months ended December 31, 2017,June 30, 2023, installation and service sales increased $2.3revenue decreased by $4.3 million, or 3.4%5.3%, to $70.1$76.6 million, compared to $67.8$80.9 million for the three months ended December 31, 2016, due to acquisitions.June 30, 2022 driven by a decrease in installation sales.
2527
For the three months ended December 31, 2017,June 30, 2023, cost of product increased $43.2decreased $122.1 million, or 21.6%41.9%, to $242.8$169.1 million, compared to $199.6$291.2 million for the three months ended December 31, 2016,June 30, 2022, due to an increasea decrease in total volume sold of 4.0%16.4% and a $0.2623decrease in wholesale product cost of $1.1292 per gallon, or 16.9%, increase in30.6%. Product volumes and wholesale product cost.cost include heating oil, propane, motor fuels and other petroleum products.
Gross Profit — Product
The table below calculates the Company’sour per gallon margins and reconciles product gross profit for home heating oil and propane and motor fuel and other petroleum products. We believe the change in home heating oil and propane margins should be evaluated before the effects of increases or decreases in the fair value of derivative instruments, as we believe that realized per gallon margins should not include the impact of non-cash changes in the market value of hedges before the settlement of the underlying transaction. On that basis, home heating oil and propane margins for the three months ended December 31, 2017June 30, 2023 increased by $0.0265$0.1251 per gallon, or 2.4%9.5%, to $1.1193$1.4454 per gallon, from $1.0928$1.3203 per gallon during the three months ended December 31, 2016.
At December 31, 2017,June 30, 2022. Going forward, we had 83.9 million gallons of home heating oil hedged for our ceiling customers and 17.9 million gallons for our fixed priced customers. Over 98% of these hedges were at their strike price, which reduces the potential forcannot assume that per gallon margin expansion for these customers unlessmargins realized during the price for home heating oil declines. In addition,three months ended June 30, 2023 are sustainable especially with the percentage of customers on variable pricing has decreased (as the percentage of customers that have elected price protection has increased), which may adversely impact homevolatility in heating oil and propane margins for the remainder of fiscal 2018 as the per gallon margins realized from price–protected customers generally are less than variable priced residential customers.
costs. Product sales and cost of product include home heating oil, propane, other petroleum products and liquidated damages billings.
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||||||||||
|
| December 31, 2017 |
|
| December 31, 2016 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||||||||||||||||||
Home Heating Oil and Propane |
| Amount (in millions) |
|
| Per Gallon |
|
| Amount (in millions) |
|
| Per Gallon |
|
| Amount |
|
| Per |
|
| Amount |
|
| Per |
| ||||||||
Volume |
|
| 103.4 |
|
|
|
|
|
|
| 99.5 |
|
|
|
|
|
|
| 30.1 |
|
|
|
|
|
| 40.7 |
|
|
|
| ||
Sales |
| $ | 301.4 |
|
| $ | 2.9144 |
|
| $ | 262.3 |
|
| $ | 2.6358 |
|
| $ | 122.0 |
|
| $ | 4.0581 |
|
| $ | 189.2 |
|
| $ | 4.6453 |
|
Cost |
| $ | 185.7 |
|
| $ | 1.7951 |
|
| $ | 153.6 |
|
| $ | 1.5430 |
|
| $ | 78.6 |
|
| $ | 2.6127 |
|
| $ | 135.4 |
|
| $ | 3.3250 |
|
Gross Profit |
| $ | 115.7 |
|
| $ | 1.1193 |
|
| $ | 108.7 |
|
| $ | 1.0928 |
|
| $ | 43.4 |
|
| $ | 1.4454 |
|
| $ | 53.8 |
|
| $ | 1.3203 |
|
Other Petroleum Products |
| Amount (in millions) |
|
| Per Gallon |
|
| Amount (in millions) |
|
| Per Gallon |
| ||||||||||||||||||||
Motor Fuel and Other Petroleum Products |
| Amount |
|
| Per |
|
| Amount |
|
| Per |
| ||||||||||||||||||||
Volume |
|
| 30.7 |
|
|
|
|
|
|
| 29.4 |
|
|
|
|
|
|
| 35.9 |
|
|
|
|
|
| 38.1 |
|
|
|
| ||
Sales |
| $ | 65.3 |
|
| $ | 2.1268 |
|
| $ | 54.0 |
|
| $ | 1.8331 |
|
| $ | 101.6 |
|
| $ | 2.8305 |
|
| $ | 169.0 |
|
| $ | 4.4339 |
|
Cost |
| $ | 57.1 |
|
| $ | 1.8603 |
|
| $ | 46.0 |
|
| $ | 1.5635 |
|
| $ | 90.5 |
|
| $ | 2.5235 |
|
| $ | 155.8 |
|
| $ | 4.0873 |
|
Gross Profit |
| $ | 8.2 |
|
| $ | 0.2665 |
|
| $ | 8.0 |
|
| $ | 0.2696 |
|
| $ | 11.1 |
|
| $ | 0.3070 |
|
| $ | 13.2 |
|
| $ | 0.3466 |
|
Total Product |
| Amount (in millions) |
|
|
|
| Amount (in millions) |
|
|
|
| Amount |
|
| Amount |
|
| |||||||
Sales |
| $ | 366.7 |
|
|
|
| $ | 316.3 |
|
|
|
| $ | 223.6 |
|
|
|
| $ | 358.2 |
|
|
|
Cost |
| $ | 242.8 |
|
|
|
| $ | 199.6 |
|
|
|
| $ | 169.1 |
|
|
|
| $ | 291.2 |
|
|
|
Gross Profit |
| $ | 123.9 |
|
|
|
| $ | 116.7 |
|
|
|
| $ | 54.5 |
|
|
|
| $ | 67.0 |
|
|
|
For the three months ended December 31, 2017,June 30, 2023, total product gross profit was $123.9$54.5 million, an increase of $7.2which was $12.5 million, or 6.2%18.7%, versuslower than the three months ended December 31, 2016,June 30, 2022, due to an increasea decrease in home heating oil and propane volume sold ($4.414.0 million) and, decrease in gross profit from other petroleum products ($2.1 million), that was partially offset by an increase in home heating oil and propane margins ($2.83.6 million).
Cost of Installations and ServicesService
Total installation costs for the three months ended December 31, 2017 were $22.6June 30, 2023 decreased by $2.1 million nearly unchanged versus $22.3or 8.6%, to $22.9 million, incompared to $25.0 million of installation costs for the three months ended December 31, 2016.June 30, 2022. This decrease was largely due to lower installation sales. Installation costs as a percentage of installation sales were 83.4% for the three months ended December 31, 2017June 30, 2023 and 82.5% for the three months ended December 31, 2016 were 82.7% and 81.2%, respectively.June 30, 2022. Gross profit from installation decreased by $0.7 million.
Service expense increaseddecreased by $2.8$1.8 million, or 6.4%4.0%, to $46.9$43.7 million for the three months ended December 31, 2017, or 109.8%June 30, 2023, representing 89.0% of service sales, versus $44.2$45.5 million, or 109.5%90.1% of service sales, for the three months ended December 31, 2016. June 30, 2022. The warmer temperatures drove a decrease in service calls and related expenses. In addition, a large proportion of our service expenses are incurred under fixed-fee prepaid service contract arrangements, therefore trends in service expenses may not directly correlate to trends in the related revenues.Gross profit from service increased by $0.4 million.
We realized a combined gross profit from service and installation of $0.5$10.0 million for the three months ended December 31, 2017June 30, 2023 compared to a
26
combined gross profit of $1.3$10.3 million for the three months ended December 31, 2016. The decrease was due to the cost structure of acquisitions. Management views the service and installation department onJune 30, 2022, a combined basis because many overhead functions and direct expenses such as service technician time cannot be separated or precisely allocated to either service or installation billings.$0.3 million decrease.
28
(Increase) Decrease in the Fair Value of Derivative Instruments
During the three months ended December 31, 2017,June 30, 2023, the change in the fair value of derivative instruments resulted in an $11.4a $1.0 million credit as a decrease in the market value for unexpired hedges (a $6.5 million charge) was more than offset by a $7.5 million credit due to the expiration of certain hedged positions.
During the three months ended June 30, 2022, the change in the fair value of derivative instruments resulted in a $7.7 million credit due to an increase in the market value for unexpired hedges (an $11.6(a $19.7 million credit) reduced, partially offset by a $0.2$12.0 million charge due to the expiration of certain hedged positions.
DuringDelivery and Branch Expenses
For the three months ended December 31, 2016,June 30, 2023, delivery and branch expense decreased $0.8 million, or 1.0%, to $83.1 million, compared to $83.9 million for the three months ended June 30, 2022, due to a $0.6 million decrease in vehicle fuels expense as a result of lower diesel and gasoline costs and a $0.2 million decrease in wage, benefit and other expenses.
Depreciation and Amortization Expenses
For the three months ended June 30, 2023, depreciation and amortization expenses decreased $0.4 million, or 4.7%, to $7.7 million, compared to $8.1 million for the three months ended June 30, 2022, primarily due to intangible assets that fully amortized in the prior fiscal year.
General and Administrative Expenses
For the three months ended June 30, 2023, general and administrative expenses decreased by $0.2 million or 3.0%, to $6.1 million, from $6.3 million for the three months ended June 30, 2022, due to a $0.5 million decrease in profit sharing expense and $0.1 million of other net expense reductions, that were partially offset by a $0.4 million increase in the Company's frozen pension expense. The Company accrues approximately 6.0% of Adjusted EBITDA as defined in its profit sharing plan for distribution to its employees. This amount is payable when the Company achieves Adjusted EBITDA of at least 70% of the amount budgeted. The dollar amount of the profit sharing pool adjusts accordingly based on Adjusted EBITDA levels achieved.
Finance Charge Income
For the three months ended June 30, 2023, finance charge income was $1.8 million essentially unchanged from the three months ended June 30, 2022.
Interest Expense, Net
For the three months ended June 30, 2023, net interest expense increased by $0.8 million, or 27.7%, to $3.4 million compared to $2.6 million for the three months ended June 30, 2022. The year-over-year change was driven by an increase in the weighted average interest rate from 3.2% for the three months ended June 30, 2022 to 6.7% for the three months ended June 30, 2023, that was partially offset by a decrease in average borrowings of $78.6 million from $253.1 million for the three months ended June 30, 2022 to $174.5 million for the three months ended June 30, 2023. To hedge against rising interest rates, the Company utilizes interest rate swaps. After giving effect to these interest rate swaps, approximately 55% of borrowings under Star's variable-rate long term debt were not subject to interest rate increases that occurred during the quarter.
Amortization of Debt Issuance Costs
For the three months ended June 30, 2023, amortization of debt issuance cost was $0.2 million, essentially unchanged from the three months ended June 30, 2022.
Income Tax Benefit
For the three months ended June 30, 2023, the Company’s income tax benefit increased by $5.5 million to $9.3 million, from $3.8 million for the three months ended June 30, 2022. The increase in the income tax benefit was driven by an $18.8 million increase in loss before income taxes.
29
Net Loss
For the three months ended June 30, 2023, Star’s net loss increased $13.3 million, to $23.9 million, compared to the three months ended June 30, 2022, primarily due to an increase in Adjusted EBITDA loss of $11.8 million, an unfavorable change in the fair value of derivative instruments resulted in an $8.6of $6.6 million credit due to anand a $0.8 million increase in the market value for unexpired hedges (an $8.2interest expense that was partially offset by a $5.5 million credit) and a $0.4 million credit due to the expiration of certain hedged positions.increase in income tax benefit.
Delivery and Branch ExpensesAdjusted EBITDA Loss
For the three months ended December 31, 2017, delivery and branch expenses increased $10.1 million, or 12.4%, to $91.2 million, compared to $81.1 million for the three months ended December 31, 2016 primarily due to the additional costs from acquisitions of $4.0 million, a $3.0 million increase in the base business, or 3.7%, and a $3.1 million charge relating to an amount due under our weather hedge contract as temperatures in November and December were 13.4% colder than the Payment Threshold. Higher insurance expense of $0.7 million and an increase in customer service, sales, operations and information technology costs of $2.3 million drove the increase in the base business. The amount due under our weather hedge contract could be increased or reduced, depending on temperatures experienced in the second fiscal quarter.
Depreciation and Amortization Expenses
For the three months ended December 31, 2017, depreciation and amortization expenseJune 30, 2023, Adjusted EBITDA loss increased by $1.2$11.8 million, or 18.0%, to $7.7 million, compared to $6.6 million for the three months ended December 31, 2016 largely due to acquisitions.
General and Administrative Expenses
For the three months ended December 31, 2017, general and administrative expenses increased by $0.3 million, or 4.7%, to $6.7 million compared to $6.4 million, for the three months ended December 31, 2016 largely due to legal expenses of $0.3 million associated with the change in federal income tax classification previously discussed.
Finance Charge Income
For the three months ended December 31, 2017, finance charge income increased by $0.1 million, or 9.8% to $0.8 million compared to $0.7 million for the three months ended December 31, 2016. The increase in the wholesale cost of product and the higher volume led to an increase in product sales and, thus, accounts receivable balances subject to a finance charge.
Interest Expense, Net
For the three months ended December 31, 2017, net interest expense increased to $2.1 million compared to $1.8 million for the three months ended December 31, 2016 primarily due to $0.3 million of interest expense on our revolving credit facility borrowings to finance our working capital due to the 5.5% colder weather and financing of the $34.2 million additional investment into the irrevocable trust that we did not incur in the prior year.
Amortization of Debt Issuance Costs
For the three months ended December 31, 2017, amortization of debt issuance costs was unchanged at $0.3$22.9 million, compared to the three months ended December 31, 2016.
Income Tax Expense
For the three months ended December 31, 2017, income tax expense decreasedJune 30, 2022, as an increase in per gallon margins was more than offset by $14.4a 10.6 million to a $1.5 million tax benefit, from a $12.9 million expense for the three months ended December 31, 2016. Thegallon decrease is primarily due to an $11.5 million tax benefit recorded as of December 31, 2017 to reflect the impact of the Tax Cuts and Jobs Act signed into law on December 22, 2017. The tax reform reduced the Federal statutory income tax rate for corporations from 35% to 21% effective January 1, 2018, therefore
27
the Company’s net deferred tax liability will be realized at a lower statutory tax rate than originally recorded, resulting in a tax benefit to the Company. Excluding the impact of this net deferred tax liability related tax benefit our effective income tax rate decreased from 41.3% at December 31, 2016 to 34.7% at December 31, 2017, primarily due to the lower enacted Federal statutory tax.
Net Income
For the three months ended December 31, 2017, net income increased $11.9 million, or 65.2%, to $30.2 million, from $18.3 million for the three months ended December 31, 2016, primarily due to a decrease in income tax expense of $14.4 million as a result of the aforementioned Tax Reform Act.
Adjusted EBITDA
For the three months ended December 31, 2017, Adjusted EBITDA decreased by $3.8 million, or 12.3%, to $27.4 million as higher home heating oil and propane margins and the additional Adjusted EBITDA provided by acquisitions was more than offset by higher operating costs in the base business of $3.0 million, a $3.1 million charge relating to an amount due under our weather hedge contract as temperatures in November and December were 13.4% colder than the Payment Threshold, and a decline in volume in the base business. While temperatures were 5.5% colder for the three months ended December 31, 2017 than the prior year’s comparable quarter, this primarily reflected the fact that the last week of December 2017 was over 40% colder than normal. We believe that these temperatures will positively impact deliveries during the second quarter of fiscal 2018.sold.
EBITDA and Adjusted EBITDA should not be considered as an alternative to net income, (asas an indicator of operating performance)performance, or as an alternative to cash flow, (asas a measure of liquidity or ability to service debt obligations)obligations, but provides additional information for evaluating ourthe Company’s ability to make the Minimum Quarterly Distribution. EBITDA and Adjusted EBITDA are calculated as follows:
|
| Three Months |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Net loss |
| $ | (23,906 | ) |
| $ | (10,587 | ) |
Plus: |
|
|
|
|
|
| ||
Income tax benefit |
|
| (9,290 | ) |
|
| (3,766 | ) |
Amortization of debt issuance costs |
|
| 245 |
|
|
| 222 |
|
Interest expense, net |
|
| 3,365 |
|
|
| 2,635 |
|
Depreciation and amortization |
|
| 7,684 |
|
|
| 8,067 |
|
EBITDA (a) |
|
| (21,902 | ) |
|
| (3,429 | ) |
(Increase) / decrease in the fair value of derivative instruments |
|
| (1,036 | ) |
|
| (7,669 | ) |
Adjusted EBITDA (a) |
|
| (22,938 | ) |
|
| (11,098 | ) |
Add / (subtract) |
|
|
|
|
|
| ||
Income tax benefit |
|
| 9,290 |
|
|
| 3,766 |
|
Interest expense, net |
|
| (3,365 | ) |
|
| (2,635 | ) |
Provision for losses on accounts receivable |
|
| 3,742 |
|
|
| 3,097 |
|
Decrease in accounts receivables |
|
| 116,224 |
|
|
| 72,459 |
|
Decrease (increase) in inventories |
|
| 18,142 |
|
|
| (1,924 | ) |
Increase in customer credit balances |
|
| 26,283 |
|
|
| 12,416 |
|
Change in deferred taxes |
|
| 2,095 |
|
|
| 3,292 |
|
Change in other operating assets and liabilities |
|
| (32,925 | ) |
|
| (5,365 | ) |
Net cash provided by operating activities |
| $ | 116,548 |
|
| $ | 74,008 |
|
Net cash used in investing activities |
| $ | (1,481 | ) |
| $ | (11,267 | ) |
Net cash used in financing activities |
| $ | (80,006 | ) |
| $ | (71,459 | ) |
|
| Three Months Ended December 31, |
| |||||
(in thousands) |
| 2017 |
|
| 2016 |
| ||
Net income |
| $ | 30,182 |
|
| $ | 18,275 |
|
Plus: |
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
|
| (1,512 | ) |
|
| 12,863 |
|
Amortization of debt issuance cost |
|
| 309 |
|
|
| 312 |
|
Interest expense, net |
|
| 2,087 |
|
|
| 1,787 |
|
Depreciation and amortization |
|
| 7,741 |
|
|
| 6,561 |
|
EBITDA (a) |
|
| 38,807 |
|
|
| 39,798 |
|
(Increase) / decrease in the fair value of derivative instruments |
|
| (11,400 | ) |
|
| (8,551 | ) |
Adjusted EBITDA (a) |
|
| 27,407 |
|
|
| 31,247 |
|
Add / (subtract) |
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
| 1,512 |
|
|
| (12,863 | ) |
Interest expense, net |
|
| (2,087 | ) |
|
| (1,787 | ) |
Provision for losses on accounts receivable |
|
| 311 |
|
|
| 31 |
|
Increase in accounts receivables |
|
| (96,193 | ) |
|
| (76,845 | ) |
Increase in inventories |
|
| (11,886 | ) |
|
| (16,248 | ) |
Decrease in customer credit balances |
|
| (14,294 | ) |
|
| (22,805 | ) |
Change in deferred taxes |
|
| (2,740 | ) |
|
| 3,941 |
|
Change in other operating assets and liabilities |
|
| 34,734 |
|
|
| 29,823 |
|
Net cash used in operating activities |
| $ | (63,236 | ) |
| $ | (65,506 | ) |
Net cash used in investing activities |
| $ | (37,891 | ) |
| $ | (21,796 | ) |
Net cash provided by (used in) financing activities |
| $ | 69,808 |
|
| $ | (14,560 | ) |
|
|
• our compliance with certain financial covenants included in our debt agreements;
• our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis;
• our operating performance and return on invested capital compared to those of other companies in the retail distribution of refined petroleum products, without regard to financing methods and capital structure;
• our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners; and
• the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities.
The method of calculating Adjusted EBITDA may not be consistent with that of other companies, and EBITDA and Adjusted EBITDA both have limitations as analytical tools and so should not be viewed in isolation and should be viewedbut in conjunction with measurements that are computed in accordance with GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are:
30
• EBITDA and Adjusted EBITDA do not reflect our cash used for capital expenditures.
• Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDA and Adjusted EBITDA do not reflect the cash requirements for such replacements;
• EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements;
• EBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and
EBITDA and Adjusted EBITDA do not reflect the cash required to pay taxes.
31
Nine Months Ended June 30, 2023
Compared to the Nine Months Ended June 30, 2022
Volume
For the nine months ended June 30, 2023, retail volume of home heating oil and propane sold decreased by 36.3 million gallons, or 13.1%, to 240.4 million gallons, compared to 276.7 million gallons for the nine months ended June 30, 2022. For those locations where we had existing operations during both periods, which we sometimes refer to as the “base business” (i.e., excluding acquisitions), temperatures (measured on a heating degree day basis) for the nine months ended June 30, 2023 were the third warmest in the last 123 years in the New York City metropolitan area. For the nine months ended June 30, 2023 temperatures were 7.7% warmer than the nine months ended June 30, 2022 and 16.3% warmer than normal, as reported by NOAA. For the twelve months ended June 30, 2023, net customer attrition for the base business was 3.1%. The impact of fuel conservation, along with any period-to-period differences in delivery scheduling, the timing of accounts added or lost during the fiscal years, equipment efficiency, and other volume variances not otherwise described, are included in the chart below under the heading “Other.” An analysis of the change in the retail volume of home heating oil and propane, which is based on management’s estimates, sampling, and other mathematical calculations and certain assumptions, is found below:
(in millions of gallons) | Heating Oil | |||
Volume - Nine months ended June 30, 2022 | 276.7 | |||
Net customer attrition | (10.6 | ) | ||
Impact of warmer temperatures | (20.7 | ) | ||
Acquisitions | 3.3 | |||
Sale of certain assets | (1.9 | ) | ||
Other | (6.4 | ) | ||
Change | (36.3 | ) | ||
Volume - Nine months ended June 30, 2023 | 240.4 |
The following chart sets forth the percentage by volume of total home heating oil sold to residential variable-price customers, residential price-protected customers and commercial/industrial/other customers for the nine months ended June 30, 2023, compared to the nine months ended June 30, 2022:
|
| Nine Months Ended |
| |||||
Customers |
| June 30, |
|
| June 30, |
| ||
Residential Variable |
|
| 42.4 | % |
|
| 44.3 | % |
Residential Price-Protected (Ceiling and Fixed Price) |
|
| 44.8 | % |
|
| 43.3 | % |
Commercial/Industrial |
|
| 12.8 | % |
|
| 12.4 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
Volume of motor fuel and other petroleum products sold decreased by 9.0 million gallons, or 7.9%, to 104.7 million gallons for the nine months ended June 30, 2023, compared to 113.7 million gallons for the nine months ended June 30, 2022.
Product Sales
For the nine months ended June 30, 2023, product sales decreased by $19.3 million, or 1.3%, to $1,462.7 million, compared to $1,482.0 million for the nine months ended June 30, 2022, due to a decrease in total volume sold of 11.6% that was partially offset by a $0.3447 per gallon, or 12.7% increase in wholesale product cost. Product volumes and wholesale product cost include heating oil, propane, motor fuels and other petroleum products.
Installations and Service
For the nine months ended June 30, 2023, installation and service revenue decreased by $4.8 million, or 2.1%, to $223.2 million, compared to $228.0 million for the nine months ended June 30, 2022, as a decrease in installation sales of $5.0 million was partially offset by an increase in service revenue of $0.2 million.
32
Cost of Product
For the nine months ended June 30, 2023, cost of product decreased $3.7 million, or 0.4%, to $1,054.5 million, compared to $1,058.2 million for the nine months ended June 30, 2022 due to a decrease in total volume sold of 11.6% that was partially offset by a $0.3447 per gallon, or 12.7%, increase in wholesale product cost. Product volumes and wholesale product cost include heating oil, propane, motor fuels and other petroleum products.
Gross Profit — Product
The table below calculates our per gallon margins and reconciles product gross profit for home heating oil and propane and motor fuel and other petroleum products. We believe the change in home heating oil and propane margins should be evaluated before the effects of increases or decreases in the fair value of derivative instruments, as we believe that realized per gallon margins should not include the impact of non-cash changes in the market value of hedges before the settlement of the underlying transaction. On that basis, home heating oil and propane margins for the nine months ended June 30, 2023 increased by $0.1521 per gallon, or 10.8%, to $1.5567 per gallon, from $1.4046 per gallon during the nine months ended June 30, 2022. Going forward, we cannot assume that per gallon margins realized during the nine months ended June 30, 2023 are sustainable especially with the volatility in heating oil and propane costs. Product sales and cost of product include home heating oil, propane, other petroleum products and liquidated damages billings.
|
| Nine Months Ended |
| |||||||||||||
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||||||||
Home Heating Oil and Propane |
| Amount |
|
| Per |
|
| Amount |
|
| Per |
| ||||
Volume |
|
| 240.4 |
|
|
|
|
|
| 276.7 |
|
|
|
| ||
Sales |
| $ | 1,124.0 |
|
| $ | 4.6754 |
|
| $ | 1,088.5 |
|
| $ | 3.9342 |
|
Cost |
| $ | 749.8 |
|
| $ | 3.1187 |
|
| $ | 699.9 |
|
| $ | 2.5296 |
|
Gross Profit |
| $ | 374.2 |
|
| $ | 1.5567 |
|
| $ | 388.6 |
|
| $ | 1.4046 |
|
Motor Fuel and Other Petroleum Products |
| Amount |
|
| Per |
|
| Amount |
|
| Per |
| ||||
Volume |
|
| 104.7 |
|
|
|
|
|
| 113.7 |
|
|
|
| ||
Sales |
| $ | 338.7 |
|
| $ | 3.2342 |
|
| $ | 393.5 |
|
| $ | 3.4601 |
|
Cost |
| $ | 304.7 |
|
| $ | 2.9095 |
|
| $ | 358.3 |
|
| $ | 3.1506 |
|
Gross Profit |
| $ | 34.0 |
|
| $ | 0.3247 |
|
| $ | 35.2 |
|
| $ | 0.3095 |
|
Total Product |
| Amount |
|
|
|
| Amount |
|
|
| ||
Sales |
| $ | 1,462.7 |
|
|
|
| $ | 1,482.0 |
|
|
|
Cost |
| $ | 1,054.5 |
|
|
|
| $ | 1,058.2 |
|
|
|
Gross Profit |
| $ | 408.2 |
|
|
|
| $ | 423.8 |
|
|
|
For the nine months ended June 30, 2023, total product gross profit was $408.2 million, which was $15.6 million, or 3.7%, lower than the nine months ended June 30, 2022, due to a decrease in home heating oil and propane volume sold ($51.0 million) and a decrease in gross profit from other petroleum products ($1.2 million largely due to a decrease in volume sold) that was partially offset by an increase in home heating oil and propane margins ($36.6 million).
Cost of Installations and Service
Total installation costs for the nine months ended June 30, 2023 decreased by $3.4 million or 4.5%, to $71.0 million, compared to $74.4 million of installation costs for the nine months ended June 30, 2022, primarily due to lower installations revenue. Installation costs as a percentage of installation sales were 83.1% for the nine months ended June 30, 2023 and 82.3% for the nine months ended June 30, 2022. Gross profit from installation decreased by $1.5 million due in part to reduced installation sales as a result of the warmer temperatures.
For the nine months ended June 30, 2023, service expense was $140.4 million, essentially unchanged from the nine months ended June 30, 2022, representing 101.9% of service sales, versus 102.0% of service sales, for the nine months ended June 30, 2022. A large proportion of our service expenses are incurred under fixed-fee prepaid service contract arrangements, therefore trends in service expenses may not directly correlate to trends in the related revenues.Gross loss from service decreased by $0.1 million.
We realized a combined gross profit from service and installation of $11.8 million for the nine months ended June 30, 2023 compared to a gross profit of $13.2 million for the nine months ended June 30, 2022, a $1.4 million decrease.
33
(Increase) Decrease in the Fair Value of Derivative Instruments
During the nine months ended June 30, 2023, the change in the fair value of derivative instruments resulted in a $19.6 million charge due to a decrease in the market value for unexpired hedges (a $13.5 million charge) and a $6.1 million charge due to the expiration of certain hedged positions.
During the nine months ended June 30, 2022, the change in the fair value of derivative instruments resulted in an $11.9 million credit due to an increase in the market value for unexpired hedges (a $33.6 million credit), partially offset by a $21.7 million charge due to the expiration of certain hedged positions.
Delivery and Branch Expenses
For the nine months ended June 30, 2023, delivery and branch expense decreased $3.4 million, or 1.2%, to $277.0 million, compared to $280.4 million for the nine months ended June 30, 2022, due to an $11.4 million higher benefit recorded from the Company’s weather hedge that was partially offset by a $6.0 million, or 2.2%, increase in expense within the base business and additional costs from acquisitions of $2.0 million. The increase in base business expenses was driven by a $3.8 million increase in bad debts and credit card fees, a $2.2 million increase in vehicle fuel expenses due to higher diesel and gasoline costs, and a $1.9 million, or a 0.7%, increase in wage, benefit and other expenses, that was partially offset by a $1.9 million decrease in insurance claims expense. Temperatures for the nine months ended June 30, 2023 were 7.7% warmer than nine months ended June 30, 2022 and 16.3% warmer than normal, as reported by NOAA. As of June 30, 2023 we recorded a benefit of $12.5 million under our weather hedge program that decreased delivery and branch expenses, versus a benefit of $1.1 million as of June 30, 2022.
Depreciation and Amortization Expenses
For the nine months ended June 30, 2023, depreciation and amortization expenses decreased $1.5 million, or 5.9%, to $23.1 million, compared to $24.6 million for the nine months ended June 30, 2022, primarily due to intangible assets that fully amortized in the prior fiscal year.
General and Administrative Expenses
For the nine months ended June 30, 2023, general and administrative expenses increased by $0.8 million or 4.2%, to $19.6 million, from $18.8 million for the nine months ended June 30, 2022, due to a $1.2 million increase in the Company's frozen pension expense, $0.6 million of increases in salaries and benefits expenses and $0.2 million of other net expense increases that were partially offset by a $0.7 million decrease in profit sharing expense and a $0.5 million decrease in legal and professional expenses. The Company accrues approximately 6.0% of Adjusted EBITDA as defined in its profit sharing plan for distribution to its employees. This amount is payable when the Company achieves Adjusted EBITDA of at least 70% of the amount budgeted. The dollar amount of the profit sharing pool adjusts accordingly based on Adjusted EBITDA levels achieved.
Finance Charge Income
For the nine months ended June 30, 2023, finance charge income increased to $4.9 million from $3.3 million for the nine months ended June 30, 2022, primarily due to higher customer late payment charges.
Interest Expense, Net
For the nine months ended June 30, 2023, net interest expense increased by $5.2 million, or 69.8%, to $12.6 million compared to $7.4 million for the nine months ended June 30, 2022. The year-over-year change was driven by an increase in the weighted average interest rate from 3.2% for the nine months ended June 30, 2022 to 6.3% for the nine months ended June 30, 2023. To hedge against rising interest rates, the Company utilizes interest rate swaps. After giving effect to these interest rate swaps, approximately 55% of borrowings under Star's variable-rate long term debt were not subject to interest rate increases that occurred during the nine months ended June 30, 2023.
Amortization of Debt Issuance Costs
For the nine months ended June 30, 2023, amortization of debt issuance cost increased to $0.8 million from $0.7 million for the nine months ended June 30, 2022.
34
Income Tax Expense
For the nine months ended June 30, 2023, the Company’s income tax expense decreased by $14.6 million to $20.4 million, from $35.0 million for the nine months ended June 30, 2022. The decrease in the income tax expense was driven by a $48.2 million decline in income before income taxes and a decrease in the effective income tax rate from 29.1% for the nine months ended June 30, 2022 to 28.3% for the nine months ended June 30, 2023 due primarily to a decrease in state income taxes.
Net Income
For the nine months ended June 30, 2023, Star’s net income decreased $33.6 million, to $51.7 million, compared to the nine months ended June 30, 2022, primarily due to an unfavorable change in the fair value of derivative instruments of $31.5 million, a decrease in Adjusted EBITDA of $12.8 million and a $5.2 million increase in interest expense that was partially offset by an $14.6 million decrease in income tax expense.
Adjusted EBITDA
For the nine months ended June 30, 2023, Adjusted EBITDA decreased by $12.8 million, to $128.3 million, compared to the nine months ended June 30, 2022, as a decrease in home heating oil and propane volume of 36.3 million gallons more than offset an increase in per gallon margins and an $11.4 million higher benefit recorded from the Company’s weather hedge. Temperatures for the nine months ended June 30, 2023 were the third warmest in the last 123 years in the New York City metropolitan area. Temperatures were 7.7% warmer than the nine months ended June 30, 2022 and 16.3% warmer than normal, as reported by NOAA. As of June 30, 2023, the Company recorded a benefit of $12.5 million under its weather hedge program that decreased delivery and branch expenses, versus a benefit of $1.1 million as of June 30, 2022.
EBITDA and Adjusted EBITDA should not be considered as an alternative to net income, as an indicator of operating performance, or as an alternative to cash flow, as a measure of liquidity or ability to service debt obligations, but provides additional information for evaluating the Company’s ability to make the Minimum Quarterly Distribution. EBITDA and Adjusted EBITDA are calculated as follows:
|
| Nine Months |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Net income |
| $ | 51,674 |
|
| $ | 85,281 |
|
Plus: |
|
|
|
|
|
| ||
Income tax expense |
|
| 20,426 |
|
|
| 34,972 |
|
Amortization of debt issuance costs |
|
| 832 |
|
|
| 698 |
|
Interest expense, net |
|
| 12,602 |
|
|
| 7,422 |
|
Depreciation and amortization |
|
| 23,147 |
|
|
| 24,596 |
|
EBITDA (a) |
|
| 108,681 |
|
|
| 152,969 |
|
(Increase) / decrease in the fair value of derivative instruments |
|
| 19,622 |
|
|
| (11,881 | ) |
Adjusted EBITDA (a) |
|
| 128,303 |
|
|
| 141,088 |
|
Add / (subtract) |
|
|
|
|
|
| ||
Income tax expense |
|
| (20,426 | ) |
|
| (34,972 | ) |
Interest expense, net |
|
| (12,602 | ) |
|
| (7,422 | ) |
Provision for losses on accounts receivable |
|
| 8,510 |
|
|
| 5,264 |
|
Increase in accounts receivables |
|
| (8,540 | ) |
|
| (92,604 | ) |
Decrease (increase) in inventories |
|
| 29,751 |
|
|
| (19,972 | ) |
Decrease in customer credit balances |
|
| (15,485 | ) |
|
| (38,497 | ) |
Change in deferred taxes |
|
| (10,284 | ) |
|
| 7,837 |
|
Change in other operating assets and liabilities |
|
| 3,488 |
|
|
| 7,845 |
|
Net cash provided by (used in) operating activities |
| $ | 102,715 |
|
| $ | (31,433 | ) |
Net cash used in investing activities |
| $ | (5,580 | ) |
| $ | (24,770 | ) |
Net cash (used in) provided by financing activities |
| $ | (54,609 | ) |
| $ | 60,400 |
|
35
• our compliance with certain financial covenants included in our debt agreements;
• our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis;
• our operating performance and return on invested capital compared to those of other companies in the retail distribution of refined petroleum products, without regard to financing methods and capital structure;
• our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners; and
• the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities.
The method of calculating Adjusted EBITDA may not be consistent with that of other companies, and EBITDA and Adjusted EBITDA both have limitations as analytical tools and so should not be viewed in isolation but in conjunction with measurements that are computed in accordance with GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are:
• EBITDA and Adjusted EBITDA do not reflect our cash used for capital expenditures.
• Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDA and Adjusted EBITDA do not reflect the cash requirements for such replacements;
• EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements;
• EBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and EBITDA and Adjusted EBITDA do not reflect the cash required to pay taxes.
DISCUSSION OF CASH FLOWS
We use the indirect method to prepare our Consolidated Statements of Cash Flows. Under this method, we reconcile net income to cash flows provided by operating activities by adjusting net income for those items that impact net income but do not result in actual cash receipts or payment during the period.
Operating Activities
Due to the seasonal nature of our business, cash is generally used in operations during the winter (our first and second fiscal quarters) as we require additional working capital to support the high volume of sales during this period, and cash is generally provided by operating activities during the spring and summer (our third and fourth fiscal quarters) when customer payments exceed the cost of deliveries.
During the threenine months ended December 31, 2017,June 30, 2023, cash used inprovided by operating activities decreased by $2.3increased $134.1 million, to $63.2$102.7 million, when compared to $65.5$31.4 million ofin cash used in operating activities during the threenine months ended December 31, 2016, as a $0.4 millionJune 30, 2022. The increase in cash generated from operations, higher accounts payable of $5.4 million, lower inventory purchases of $4.4 million, and a $3.4 million reduction in taxes paid were partially offsetwas driven by an increase in cash used to financecollection of trade receivables on a comparable basis (including accounts receivable of $10.8 million (includingand customer credit balances)balance accounts) of $107.1 million due primarily to higher average sales prices resulting from higher average product costs and a $49.7 million decrease in cash required to purchase liquid product inventory. Further contributing to the increase was a $16.9 million decrease in net cash paid for certain hedge positions, a $6.9 million increase in collection of derivative settlement receivables on a comparative basis and $3.4 million of other net changes in other assets and liabilities of $0.5 million. Accounts receivable roseworking capital. The increase was partially offset by a $26.4 million unfavorable change in accounts payable due to the increase in total sales of 13.7%pricing and accounts payable increased due to the timing of inventory purchases, during the quarter.
During the three months ended December 31, 2016, cash used in operating activities increased by $68.7an $18.3 million to $65.5 million, when compared to $3.2 million of cash provided by operating activities during the three months ended December 31, 2015, as an $8.4 million increasedecrease in cash generatedflows from operations and an increase$5.2 million more in cash provided by accounts payablepayroll taxes paid in the first fiscal quarter of $24.7 million was more than offset by an increase2023 versus the first fiscal quarter of 2022 as the result of deferring payment of certain payroll tax withholdings in cash usedfirst quarter of fiscal 2021 to finance accounts receivablethe first fiscal quarter of $87.8 million (including customer credit balances), and an increase in inventory of $7.2 million. The impact of significantly colder weather duringfiscal 2023.
Investing Activities
During the threenine months ended December 31, 2016June 30, 2023, the Company acquired two heating oil dealers for an aggregate price of approximately $1.2 million (using $1.2 million in cash). The gross purchase price was allocated $1.7 million to intangible assets, $0.2 million to goodwill, $0.2 million to fixed assets and an increase in product costs drovereduced by $0.9 million of negative working capital. On October 25, 2022, the increase in accounts receivable, higher product purchases and higher accounts payable levels. Higher product costs led to an increase in inventory.Company sold certain assets for cash proceeds of $2.2 million.
2936
Our capital expenditures for the threenine months ended December 31, 2017June 30, 2023 totaled $3.6$6.7 million, as we invested in computer hardware and software ($0.6 million), refurbished certain physical plants ($0.30.7 million), expanded our propane operations ($0.91.0 million) and made additions to our fleet and other equipment ($1.84.4 million). We completed two acquisitions for approximately $0.3 million; $0.2 million in cash and $0.1
During the nine months ended June 30, 2023, $0.7 million of deferred liability.
On October 11, 2017, we deposited $34.2 million of cashearnings were reinvested into an irrevocable trust to secure certain liabilities forestablished in connection with our captive insurance company and several days later, $36.6 million of letters of credit were cancelled that previously had secured these liabilities.company. The cash deposited into the trust is shown on our balance sheet as a long-term asset in investmentscaptive insurance collateral and, correspondingly, reduced cash on our balance sheet. We believe that the investmentinvestments into the irrevocable trust will lower our letter of credit fees, increase interest income on invested cash balances, and provide us with certain tax advantages attributable to a captive insurance company. As a result
During the nine months ended June 30, 2022, the Company acquired five heating oil dealers for an aggregate price of these transactions, our abilityapproximately $15.6 million (using $13.1 million in cash and assuming $2.5 million in deferred liabilities). The gross purchase price was allocated $7.3 million to borrow from our bank group increasedintangible assets, $3.1 million to goodwill, $5.6 million to fixed assets and reduced by $2.4$0.4 million as the decrease in letters of credit was greater than the cash deposit.negative working capital.
Our capital expenditures for the threenine months ended December 31, 2016June 30, 2022 totaled $4.5$11.7 million, as we invested in computer hardware and software ($1.91.3 million), refurbished certain physical plants ($1.42.4 million), expanded our propane operations ($0.72.6 million) and made additions to our fleet and other equipment ($0.55.4 million). We completed three acquisitions for approximately $7.3 million; $5.8 million in cash, and $1.5 million of deferred liability (including
During the nine months ended June 30, 2022, $0.6 million of contingent consideration). The gross purchase price was allocated $2.7 million to intangible assets, $1.0 million to goodwill, $3.7 million to fixed assets and $(0.1) million to working capital.earnings were reinvested into the irrevocable trust.
Financing Activities
During the threenine months ended December 31, 2017June 30, 2023, we repaid $12.4 million of our term loan, borrowed $125.6 million under our revolving credit facility and subsequently repaid $145.7 million, repurchased 0.5 million Common Units for $4.5 million, in connection with our unit repurchase plan, and paid distributions of $6.1$16.7 million to our Common Unit holders and $0.2$0.9 million to our General Partner unit holders (including $0.1$0.8 million of incentive distributions as provided in our Partnership Agreement). We
During the nine months ended June 30, 2022, we repaid $14.6 million of our term loan, borrowed $79.1$200.2 million under our revolving credit to financefacility and subsequently repaid $79.5 million, repurchased 2.6 million Common Units for $27.3 million primarily in connection with our working capitalunit repurchase plan, and repaid $2.5 million of our term loan.
During the three months ended December 31, 2016, we paid distributions of $5.8$16.6 million to our Common Unit holders and $0.1$0.8 million to our General Partner unit holders (including $0.1$0.8 million of incentive distributions as provided in our Partnership Agreement), and repaid $8.7 million of the term loan..
FINANCING AND SOURCES OF LIQUIDITY
Liquidity and Capital Resources Comparatives
Our primary uses of liquidity are to provide funds for our working capital, capital expenditures, distributions on our units, acquisitions and unit repurchases. Our ability to provide funds for such uses depends on our future performance, which will be subject to prevailing economic, financial, geopolitical and business conditions, especially in light of the war in the Ukraine, weather, the ability to collect current and weather conditions,future accounts receivable, the ability to pass on the full impact of high product costs to customers, the effects of high net customer attrition, conservation, inflation and other factors. Capital requirements, at least in the near term, are expected to be provided by cash flows from operating activities, cash on hand as of December 31, 2017June 30, 2023 ($21.157.1 million) or a combination thereof. To the extent futureWe believe that these cash sources will also be sufficient to satisfy our capital requirements exceed cash on hand plus cash flows from operating activities,in the longer-term. However, if they are not sufficient, we anticipate that working capital will be financed by our revolving credit facility, as discussed below, and repaid from subsequent seasonal reductions in inventory and accounts receivable. As of December 31, 2017,June 30, 2023, we had $79.1accounts receivable of $139.3 million of which $96.6 million is due from residential customers and $42.7 million is due from commercial customers. Our ability to borrow from our bank group is based in part on the aging of these accounts receivable. If these balances do not meet the eligibility tests as defined in our sixth amended and restated credit agreement, our ability to borrow will be reduced and our anticipated cash flow from operating activities will also be reduced. As of June 30, 2023, we had $0.2 million of borrowings under our revolving credit facility, $73.8$152.6 million outstanding under our term loan, and $7.3$3.1 million in letters of credit outstanding primarily for prior year claims.and $9.8 million hedge positions were secured under the credit agreement.
Under the terms of the thirdsixth amended and restated credit agreement, we mustare required to maintain at all times a fixed charge coverage ratio of not less than 1.1 if Availability (borrowing base less amounts borrowed and letters of credit issued) ofis less than 12.5% of the maximum facility size and a fixed charge coverage ratio of not less than 1.1.size. We mustare also required to maintain a senior secured leverage ratio that at any time cannot be more than 3.0 as calculated during the quarters endingof June 30th or September 30th, and at any time no more than 4.55.5 as calculated during the quarters endingof December 31stor March.March 31st. As of December 31, 2017,June 30, 2023, Availability, as defined in the sixth amended and restated revolving credit facility agreement, was $185.8$218.0 million and we were in compliance with the fixed charge coverage ratio and senior secured leverage ratio.financial covenants.
Maintenance capital expenditures for the remainder of fiscal 20182023 are estimated to be approximately $7.0$3.0 million to $8.0$5.0 million, excluding the capital requirements for leased fleet. In addition, we plan to invest an additional $1.4approximately $0.5 million in our propane operations. Distributions forIf, and only to the balance of fiscal 2018,extent that, cash distributions to our unitholders remain at the current quarterly level of $0.11$0.1625 per unit for the balance of fiscal 2023, the Company would result in anmake aggregate payments of approximately $18.4$5.8 million to Common Unit holders, $0.5
37
$0.3 million to our General Partner (including $0.4$0.3 million of incentive distribution as provided for in our Partnership Agreement) and $0.4$0.3 million to management pursuant to the management incentive compensation plan which provides for certain members of management to receive incentive distributions that would otherwise be
30
payable to the General Partner. The amount of cash distributions payable to our unitholders, if any, depends on the amount of cash flow generated by the Company and our compliance with certain financial covenants under our sixth amended and restated revolving credit facility agreement. Under the terms of our sixth amended and restated revolving credit facility agreement, our term loan is repayable in quarterly payments of $2.5$4.1 million and depending onwe expect to pay $4.1 million for the remainder of fiscal 2023. Further, subject to any additional liquidity issues or concerns resulting from wholesale price volatility and our fiscal 2018 results,compliance with the financial covenants under our sixth amended and restated revolving credit facility agreement, we may be required to make an additional payment (see Note 9 — Long-Term Debt and Bank Facility Borrowings). In addition, we intend to continue to repurchase Common Units pursuant to our unit repurchase plan, as amended from time to time, and seek attractive acquisition opportunities within the Availability constraints of our revolving credit facility and funding resources.
Contractual Obligations and Off-Balance Sheet Arrangements
There has been no material change to Contractual Obligations and Off-Balance Sheet Arrangements since our September 30, 20172022 Form 10-K disclosure and therefore, the table has not been included in this Form 10-Q.
Recent Accounting Pronouncements
The following new accounting standards were recently adopted by the Company, and are more fully described inRefer to Note 2.2 – Summary of Significant Accounting Policies – Recently Adoptedfor discussion regarding the impact of accounting standards that were recently adopted and issued but not yet effective, on our consolidated financial statements.
Critical Accounting Pronouncements,Policy and Critical Accounting Estimates
We believe that there have been no significant changes to our critical accounting policy and critical accounting estimates during the nine months ended June 30, 2023 as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the fiscal year ended September 30, 2022. While our critical accounting policies and estimates have not changed in any significant way during the nine months ended June 30, 2023, the following provides disclosures about our critical accounting policy and critical accounting estimates.
Critical Accounting Policy
Fair Values of Derivatives
FASB ASC 815-10-05, Derivatives and Hedging, requires that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities. The Company has elected not to designate its commodity derivative instruments as hedging instruments under this guidance, and therefore the change in fair value of those derivative instruments are recognized in our statement of operations.
We have established the fair value of our derivative instruments using estimates determined by our counterparties and subsequently evaluated them internally using established index prices and other sources. These values are based upon, among other things, futures prices, volatility, time-to-maturity value and credit risk. The estimate of fair value we report in our financial statements:statements changes as these estimates are revised to reflect actual results, changes in market conditions, or other factors, many of which are beyond our control.
ASU No. 2015-11, SimplifyingCritical Accounting Estimates
Self-Insurance Liabilities
We currently self-insure a portion of workers’ compensation, auto, general liability and medical claims. We establish and periodically evaluate self-insurance liabilities based upon expectations as to what our ultimate liability may be for outstanding claims using developmental factors based upon historical claim experience, including frequency, severity, demographic factors and other actuarial assumptions, supplemented with the Measurement of Inventory
The following new accounting standards are currently being evaluated by the Company, and are more fully described in Note 2. Summary of Significant Accounting Policies – Recently Issued Accounting Pronouncements, of the consolidated financial statements:
ASU No. 2014-09, Revenue from Contracts with Customers
ASU No. 2016-02, Leases
ASU No. 2016-13, Financial Instruments – Credit Losses
ASU No. 2016-15, Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments
ASU No. 2017-01, Business Combinations: Clarifying the Definitionsupport of a Business
ASU No. 2017-04, Intangibles – Goodwill and Other: Simplifyingqualified third-party actuary. As of September 30, 2022, we had approximately $79.9 million of self-insurance liabilities. The ultimate resolution of these claims could differ materially from the Test for Goodwill Impairment
assumptions used to calculate the self-insurance liabilities, which could have a material adverse effect on results of operations.
3138
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to interest rate risk primarily through our bank credit facilities. We utilize these borrowings to meet our working capital needs.
At December 31, 2017,June 30, 2023, we had outstanding borrowings totaling $152.9$152.8 million, of which $96.4 million are subject to variable interest rates under our credit agreement. In the event that interest rates associated with this facility were to increase 100 basis points, the after tax impact on annual future cash flows would be a decrease of $1.1$0.7 million.
Market Risk
We regularly use derivative financial instruments to manage our exposure to market risk related to changes in the current and future market price of home heating oil and vehicle fuels. The value of market sensitive derivative instruments is subject to change as a result of movements in market prices. Sensitivity analysis is a technique used to evaluate the impact of hypothetical market value changes. Based on a hypothetical ten percent increase in the cost of product at December 31, 2017,June 30, 2023, the potential impact on our hedging activity would be to increase the fair market value of these outstanding derivatives by $12.2$5.0 million to a fair market value of $32.2$(6.2) million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the fair market value of these outstanding derivatives by $17.9$3.4 million to a fair market value $2.0of $(14.6) million.
a) Evaluation of disclosure controls and procedures
The General Partner’s chief executive officer and its chief financial officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of December 31, 2017.June 30, 2023. Based on that evaluation, such chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2017June 30, 2023 at the reasonable level of assurance. For purposes of Rule 13a-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Act”) (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
b) Change in Internal Controlinternal control over Financial Reportingfinancial reporting
No changechanges in the Company’s internal control over financial reporting occurred during the Company’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.
c) Other
The General Partner and the Company believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a Company have been detected. Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable assurances of achieving our desired control objectives, and the chief executive officer and chief financial officer of our general partnerthe General Partner have concluded, as of December 31, 2017,June 30, 2023, that our disclosure controls and procedures were effective in achieving that level of reasonable assurance.
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On April 18, 2017,In the opinion of management, we are not a civil action was filedparty to any litigation, which individually or in the United States District Court for the Eastern District of New York, entitled M. Norman Donnenfeld v. Petro, Inc., Civil Action Number 2:17-cv-2310-JFB-SIL, against Petro, Inc. By amended complaint filed on August 15, 2017, the Plaintiff alleges he did not receiveaggregate could reasonably be expected contractual benefits under his protected price plan contract when oil prices fell and asserts various claims for relief including breach of contract, violation of the New York General Business Law and fraud. The Plaintiff also seeks to have a class certifiedmaterial adverse effect on our results of similarly situated Petro customers who entered into protected price plan contracts and were denied the same contractual benefits. No class has yet been certified in this action. The Plaintiff seeks compensatory, punitive and other damages in unspecified amounts. On September 15, 2017, Petro filed a motion to dismiss the amended complaint as time-barred and for failure to state a cause of action. The motion was argued on January 18, 2018 and a decision is awaited. The Company believes the allegations lack merit and intends to vigorously defend the action; at this time we cannot assess the potential outcomeoperations, financial position or materiality of this matter.liquidity.
In addition to the other information set forth in this Report, investors should carefully review and consider the information regarding certain factors, which could materially affect our business, results of operations, financial condition and cash flows set forth in Part I Item 1A. “Risk Factors” in our Fiscal 20172022 Form 10-K. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Unregistered SalesPurchase of Equity Securities and Useby Issuer
Note 4 to the Condensed Consolidated Financial Statements concerning the Company’s repurchase of ProceedsCommon Units during the nine months ended June 30, 2023 is incorporated into this Item 2 by reference.
Not applicable.Item 3.
Defaults Upon Senior Securities
33None.
Item 4.
Mine Safety Disclosures
N/A
Item 5.
Other Information
(a) N/A
(b) N/A
(c) Trading Plans. During the quarter ended June 30, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements.
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3.2 | |
3.3 | |
4.1 | |
31.1* | Certification of Chief Executive Officer, Star Group, L.P., pursuant to Rule 13a-14(a)/15d-14(a). |
| Certification of Chief Financial Officer, Star Group, L.P., pursuant to Rule 13a-14(a)/15d-14(a). |
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101 | The following materials from the Star Group, L.P. Quarterly Report on Form 10-Q for the quarter ended |
101.INS | Inline XBRL Instance Document. |
101.SCH | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Filed herewith
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** The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in such filing.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized:
Star Group, L.P. | ||
(Registrant) | ||
By: | Kestrel Heat LLC AS GENERAL PARTNER |
Signature | Title | Date | ||
/s/ Richard F. Ambury Richard F. Ambury | Executive Vice President, Chief Financial Officer, Treasurer and Secretary of Kestrel Heat LLC (Principal Financial Officer) |
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Signature | Title | Date | ||
/s/ Cory A. Czekanski Cory A. Czekanski | Vice President – Controller of Kestrel Heat LLC (Principal Accounting Officer) |
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