!8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
|
|
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:
(Exact Name of Registrant as Specified in its Charter)
|
|
|
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
|
|
|
|
|
(Address of principal executive office) |
|
Registrant’s telephone number, including area code:
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 |
|
|
|
|
|
|
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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.
|
Large 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
At April 30, 2021, the registrant had
STAR GROUP, L.P. AND SUBSIDIARIES
INDEX TO FORM 10-Q
|
|
|
Page |
|
Part I Financial Information |
|
|
|
|
3 |
|
|
Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and September 30, 2020 |
|
3 |
|
|
4 |
|
|
|
5 |
|
|
|
6-7 |
|
|
|
8 |
|
|
Notes to Condensed Consolidated Financial Statements (unaudited) |
|
9-20 |
|
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
21-37 |
|
Item 3 - Quantitative and Qualitative Disclosures About Market Risk |
|
38 |
|
|
38 |
|
|
Part II Other Information: |
|
39 |
|
|
39 |
|
|
|
39 |
|
|
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds |
|
39 |
|
|
40 |
|
|
|
41 |
2
Part I. FINANCIAL INFORMATION
|
Item 1. |
Condensed Consolidated Financial Statements |
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
March 31, |
|
|
September 30, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
(in thousands) |
|
(unaudited) |
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|||
|
Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Receivables, net of allowance of $ |
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
|
|
Fair asset value of derivative instruments |
|
|
|
|
|
|
— |
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
Assets held for sale |
|
|
— |
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
Intangibles, net |
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
Captive insurance collateral |
|
|
|
|
|
|
|
|
|
Deferred charges and other assets, net |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
LIABILITIES AND PARTNERS’ CAPITAL |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
|
Liabilities held for sale |
|
|
— |
|
|
|
|
|
|
Revolving credit facility borrowings |
|
|
|
|
|
|
— |
|
|
Fair liability value of derivative instruments |
|
|
— |
|
|
|
|
|
|
Current maturities of long-term debt |
|
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities |
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
|
|
|
Unearned service contract revenue |
|
|
|
|
|
|
|
|
|
Customer credit balances |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
Long-term operating lease liabilities |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, net |
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
|
|
|
|
|
|
|
Partners’ capital |
|
|
|
|
|
|
|
|
|
Common unitholders |
|
|
|
|
|
|
|
|
|
General partner |
|
|
( |
) |
|
|
( |
) |
|
Accumulated other comprehensive loss, net of taxes |
|
|
( |
) |
|
|
( |
) |
|
Total partners’ capital |
|
|
|
|
|
|
|
|
|
Total liabilities and partners’ capital |
|
$ |
|
|
|
$ |
|
|
See accompanying notes to condensed consolidated financial statements.
3
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
(in thousands, except per unit data - unaudited) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Installations and services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of installations and services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in the fair value of derivative instruments |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Delivery and branch expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance charge income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Amortization of debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
General Partner’s interest in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners’ interest in net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income per Limited Partner Unit (1): |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Weighted average number of Limited Partner units outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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 March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
(in thousands - unaudited) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on pension plan obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect of unrealized gain on pension plan obligation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Unrealized gain (loss) on captive insurance collateral |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Tax effect of unrealized gain (loss) on captive insurance collateral |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Unrealized gain (loss) on interest rate hedges |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Tax effect of unrealized gain (loss) on interest rate hedges |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Total comprehensive income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See accompanying notes to condensed consolidated financial statements.
5
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
|
|
|
Three Months Ended March 31, 2021 |
|
|||||||||||||||||||||
|
|
|
Number of Units |
|
|
|
|
|
|
|
|
|
|
Accum. Other |
|
|
Total |
|
|||||||
|
(in thousands - unaudited) |
|
Common |
|
|
General Partner |
|
|
Common |
|
|
General Partner |
|
|
Comprehensive Income (Loss) |
|
|
Partners’ Capital |
|
||||||
|
Balance as of December 31, 2020 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Unrealized gain on pension plan obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Tax effect of unrealized gain on pension plan obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Unrealized loss on captive insurance collateral |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Tax effect of unrealized loss on captive insurance collateral |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Tax effect of unrealized gain on interest rate hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Retirement of units |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance as of March 31, 2021 (unaudited) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020 |
|
|||||||||||||||||||||
|
|
|
Number of Units |
|
|
|
|
|
|
|
|
|
|
Accum. Other |
|
|
Total |
|
|||||||
|
(in thousands - unaudited) |
|
Common |
|
|
General Partner |
|
|
Common |
|
|
General Partner |
|
|
Comprehensive Income (Loss) |
|
|
Partners’ Capital |
|
||||||
|
Balance as of December 30, 2019 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Unrealized gain on pension plan obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Tax effect of unrealized gain on pension plan obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Unrealized gain on captive insurance collateral |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Tax effect of unrealized gain on captive insurance collateral |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Unrealized loss on interest rate hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Tax effect of unrealized loss on interest rate hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Retirement of units |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance as of March 31, 2020 (unaudited) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
See accompanying notes to condensed consolidated financial statements.
6
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
|
|
|
Six Months Ended March 31, 2021 |
|
|||||||||||||||||||||
|
|
|
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, 2020 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Unrealized gain on pension plan obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Tax effect of unrealized gain on pension plan obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Unrealized loss on captive insurance collateral |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Tax effect of unrealized loss on captive insurance collateral |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Tax effect of unrealized gain on interest rate hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Retirement of units |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance as of March 31, 2021 (unaudited) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2020 |
|
|||||||||||||||||||||
|
|
|
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, 2019 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Unrealized gain on pension plan obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Tax effect of unrealized gain on pension plan obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Unrealized gain on captive insurance collateral |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Tax effect of unrealized gain on captive insurance collateral |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Unrealized loss on interest rate hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Tax effect of unrealized loss on interest rate hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Retirement of units |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance as of March 31, 2020 (unaudited) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
See accompanying notes to condensed consolidated financial statements.
7
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Six Months Ended March 31, |
|
|||||
|
(in thousands - unaudited) |
|
2021 |
|
|
2020 |
|
||
|
Cash flows provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Adjustment to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
(Increase) decrease in fair value of derivative instruments |
|
|
( |
) |
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Provision for losses on accounts receivable |
|
|
|
|
|
|
|
|
|
Change in deferred taxes |
|
|
|
|
|
|
|
|
|
Change in weather hedge contracts |
|
|
( |
) |
|
|
( |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Increase in receivables |
|
|
( |
) |
|
|
( |
) |
|
(Increase) decrease in inventories |
|
|
( |
) |
|
|
|
|
|
(Increase) decrease in other assets |
|
|
( |
) |
|
|
|
|
|
Increase (decrease) in accounts payable |
|
|
|
|
|
|
( |
) |
|
Decrease in customer credit balances |
|
|
( |
) |
|
|
( |
) |
|
Increase in other current and long-term liabilities |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sales of fixed assets |
|
|
|
|
|
|
|
|
|
Proceeds from sale of propane assets |
|
|
|
|
|
|
— |
|
|
Purchase of investments |
|
|
( |
) |
|
|
( |
) |
|
Acquisitions |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows provided by (used in) financing activities: |
|
|
|
|
|
|
|
|
|
Revolving credit facility borrowings |
|
|
|
|
|
|
|
|
|
Revolving credit facility repayments |
|
|
( |
) |
|
|
( |
) |
|
Loan issuance |
|
|
— |
|
|
|
|
|
|
Term loan repayments |
|
|
( |
) |
|
|
( |
) |
|
Distributions |
|
|
( |
) |
|
|
( |
) |
|
Unit repurchases |
|
|
( |
) |
|
|
( |
) |
|
Customer retainage payments |
|
|
( |
) |
|
|
( |
) |
|
Payments of debt issue costs |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
Net (decrease) increase in cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
|
|
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
|
$ |
|
|
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,” 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 home heating oil and propane customers. The Company has
The Company is organized as follows:
|
|
• |
Star is a limited partnership, which at March 31, 2021, had outstanding |
|
|
• |
Star owns |
|
|
• |
Petroleum Heat and Power Co., Inc. (“PH&P”) is a |
2) Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts of Star 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 six-month period ended March 31, 2021 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, 2020.
Comprehensive Income
Comprehensive income is comprised of Net income and Other comprehensive income. Other comprehensive income 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 effects.
9
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments with an original maturity of
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:
|
|
• |
Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. |
|
|
• |
Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. |
|
|
• |
Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. |
Captive Insurance Collateral
The captive insurance collateral is held by our captive insurance company in an irrevocable trust as collateral for certain workers’ compensation 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 fifth 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.
Unrealized gains and losses, net of related income taxes, are reported as accumulated other comprehensive gain (loss), except for losses from impairments which are determined to be other-than-temporary. Realized gains and losses, and declines in value judged to be other-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 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 expenses and other current assets” in the accompanying balance sheets and amortized over the life of the contract, with the intrinsic value method applied at each interim period.
The Company entered into weather hedge contracts for fiscal years 2020 and 2021. 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 prior ten year average. The hedge period runs from November 1 through March 31, taken as a whole, for each respective fiscal year. The “Payment Thresholds,” or strikes, are set at various levels for fiscal 2020 and 2021. The maximum that the Company could receive is $
For fiscal 2022, the Company entered into a weather hedge contract with similar terms described above. The maximum that the Company can receive is $
10
New England Teamsters and Trucking Industry Pension Fund (“the NETTI Fund”) Liability
As of March 31, 2021, we had $
Recently Adopted Accounting Pronouncements
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. The Company adopted ASU No. 2016-13 effective October 1, 2020. The adoption of ASU No. 2016-13 did not have a material impact on the Company’s consolidated financial statements and related disclosures. See Note 3 – Revenue Recognition.
In January 2017, 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 for the amount 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. The Company adopted ASU No. 2017-04 effective October 1, 2020. The adoption of ASU No. 2017-04 did not have an impact on the Company’s consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General: Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The Company adopted ASU No. 2018-14 effective October 1, 2020. The adoption of ASU No. 2018-15 did not have an impact on the Company’s consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which will align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted ASU No. 2018-15 effective October 1, 2020. The adoption of ASU No. 2018-15 did not have an impact on the Company’s consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements
No recently issued accounting pronouncements are expected to have a material impact on the Company’s consolidated financial statements.
3) Revenue Recognition
The following disaggregates our revenue by major sources for the three and six months ended March 31, 2021 and March 31, 2020:
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
(in thousands) |
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Petroleum Products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home heating oil and propane |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Other petroleum products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total petroleum products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installations and Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment installations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment maintenance service contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billable call services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total installations and services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
11
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 commissions 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 goods or services to which the assets relate. Costs to obtain new residential product and equipment maintenance service contracts are amortized as expense over the estimated customer relationship period of approximately
Contract Liability Balances
The Company has contract 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 service contract period, generally
Receivables and Allowance for Doubtful Accounts
Accounts receivables from customers are recorded at the invoiced amounts. Finance charges may be applied to trade receivables that are more than 30 days past due, and are recorded as finance charge income.
The allowance for doubtful accounts is the Company’s estimate of the amount of trade receivables that may not be collectible. The allowance is determined at an aggregate level by grouping accounts based on certain account criteria and its receivable aging. The allowance is 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 an established process to periodically review current and past due trade receivable balances to determine the adequacy of the 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 the allowance for doubtful accounts.
Changes in the allowance for credit losses are as follows:
|
(in thousands) |
Credit Loss Allowance |
|
|
|
Balance at September 30, 2020 |
$ |
|
|
|
Current period provision |
|
|
|
|
Write-offs, net and other |
|
( |
) |
|
Balance as of March 31, 2021 |
$ |
|
|
4) Common Unit Repurchase and Retirement
In July 2012, the Board adopted a plan to repurchase certain of the Company’s Common Units that was amended in fiscal 2018 (the “Repurchase Plan”). Through August 2020, the Company had repurchased approximately
12
Under the Company’s fifth amended and restated credit agreement dated December 4, 2019, in order to repurchase Common Units we must maintain Availability (as defined in the fifth amended and restated credit agreement) of $
The following table shows repurchases under the Repurchase Plan:
|
(in thousands, except per unit amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Total Number of Units Purchased |
|
|
Average Price Paid per Unit (a) |
|
|
Total Number of Units Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Number of Units that May Yet Be Purchased |
|
|
||||
|
Fiscal year 2012 to 2020 total |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter fiscal year 2021 total |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
(b), (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
(d) |
|
February 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
March 2021 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
|
|
|
|
Second quarter fiscal year 2021 total |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2021 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
|
|
(e) |
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
(d) |
|
|
(e) |
|
5) Captive Insurance Collateral
The Company considers all of its captive insurance collateral to be Level 1 available-for-sale investments. Investments at March 31, 2021 consist of the following (in thousands):
|
|
|
Amortized Cost |
|
|
Gross Unrealized Gain |
|
|
Gross Unrealized (Loss) |
|
|
Fair Value |
|
||||
|
Cash and Receivables |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
U.S. Government Sponsored Agencies |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Corporate Debt Securities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Foreign Bonds and Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Investments at September 30, 2020 consist of the following (in thousands):
|
|
|
Amortized Cost |
|
|
Gross Unrealized Gain |
|
|
Gross Unrealized (Loss) |
|
|
Fair Value |
|
||||
|
Cash and Receivables |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
U.S. Government Sponsored Agencies |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Corporate Debt Securities |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Foreign Bonds and Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
13
Maturities of investments were as follows at March 31, 2021 (in thousands):
|
|
|
Net Carrying Amount |
|
|
|
Due within one year |
|
$ |
|
|
|
Due after one year through five years |
|
|
|
|
|
Due after five years through ten years |
|
|
|
|
|
Total |
|
$ |
|
|
6) Derivatives and Hedging—Disclosures and Fair Value Measurements
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 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 March 31, 2021, 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:
As of March 31, 2020, 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:
As of March 31, 2021, the Company has interest rate swap agreements in order to mitigate exposure to market risk associated with variable rate interest on $
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., 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 March 31, 2021, the aggregate cash posted as collateral in the normal course of business at counterparties was $
14
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.
The Company had no assets or liabilities that are measured at fair value on a nonrecurring basis subsequent to their initial recognition.
|
(In thousands) |
|
|
|
|
|
|
|
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 |
|
||
|
Under FASB ASC 815-10 |
|
Balance Sheet Location |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|||
|
Asset Derivatives at March 31, 2021 |
|
|||||||||||||
|
Commodity contracts |
|
Fair asset value of derivative instruments |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Commodity contracts |
|
Long-term derivative liabilities included in the deferred charges and other assets, net |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Commodity contract assets at March 31, 2021 |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
||
|
Liability Derivatives at March 31, 2021 |
|
|||||||||||||
|
Commodity contracts |
|
Fair asset value of derivative instruments |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
Commodity contracts |
|
Long-term derivative liabilities included in the deferred charges and other assets, net |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Commodity contract liabilities at March 31, 2021 |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
||
|
Asset Derivatives at September 30, 2020 |
|
|||||||||||||
|
Commodity contracts |
|
Fair liability value of derivative instruments |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Commodity contracts |
|
Long-term derivative liabilities included in the deferred charges and other assets, net and other long-term liabilities, net balances |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Commodity contract assets September 30, 2020 |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
||
|
Liability Derivatives at September 30, 2020 |
|
|||||||||||||
|
Commodity contracts |
|
Fair liability value of derivative instruments |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
Commodity contracts |
|
Long-term derivative liabilities included in the deferred charges and other assets, net and other long-term liabilities, net balances |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Commodity contract liabilities September 30, 2020 |
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
||
15
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 |
|
|||||||||
|
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 |
|
||||||
|
Fair asset value of derivative instruments |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Long-term derivative assets included in deferred charges and other assets, net |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total at March 31, 2021 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Long-term derivative assets included in other long-term assets, net |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Fair liability value of derivative instruments |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Long-term derivative liabilities included in other long-term liabilities, net |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Total at September 30, 2020 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Effect of Derivative Instruments on the Statement of Operations |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
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 March 31, 2021 |
|
|
Three Months Ended March 31, 2020 |
|
|
Six Months Ended March 31, 2021 |
|
|
Six Months Ended March 31, 2020 |
|
||||
|
Commodity contracts |
|
Cost of product (a) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Commodity contracts |
|
Cost of installations and service (a) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Commodity contracts |
|
Delivery and branch expenses (a) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Commodity contracts |
|
(Increase) / decrease in the fair value of derivative instruments (b) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
(a) |
|
|
(b) |
|
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.
|
|
|
March 31, 2021 |
|
|
September 30, 2020 |
|
||
|
Product |
|
$ |
|
|
|
$ |
|
|
|
Parts and equipment |
|
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
|
|
|
$ |
|
|
16
8) Property and Equipment
Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the depreciable assets using the straight-line method (in thousands):
|
|
|
March 31, 2021 |
|
|
September 30, 2020 |
|
||
|
Property and equipment |
|
$ |
|
|
|
$ |
|
|
|
Less: accumulated depreciation |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
|
|
|
$ |
|
|
9) Business Combinations and Divestitures
During fiscal year 2021 the Company has acquired
Through the second quarter of fiscal year 2020, the Company acquired the customer list and the assets of a heating oil dealer for an aggregate purchase price of approximately $
10) Goodwill and Intangible Assets, net
Goodwill
A summary of changes in Company’s goodwill is as follows (in thousands):
|
Balance as of September 30, 2020 |
|
$ |
|
|
|
Fiscal year 2021 business combinations |
|
|
|
|
|
Balance as of March 31, 2021 |
|
$ |
|
|
Intangibles, net
The gross carrying amount and accumulated amortization of intangible assets subject to amortization are as follows (in thousands):
|
|
|
March 31, 2021 |
|
|
September 30, 2020 |
|
||||||||||||||||||
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
||
|
|
|
Carrying |
|
|
Accum. |
|
|
|
|
|
|
Carrying |
|
|
Accum. |
|
|
|
|
|
||||
|
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
||||||
|
Customer lists |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Trade names and other intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Amortization expense for intangible assets was $
17
11) Long-Term Debt and Bank Facility Borrowings
The Company’s debt is as follows (in thousands):
|
|
|
March 31, |
|
|
September 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
||||||||||
|
|
|
Carrying Amount |
|
|
Fair Value (a) |
|
|
Carrying Amount |
|
|
Fair Value (a) |
|
||||
|
Revolving Credit Facility Borrowings |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Senior Secured Term Loan (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total short-term portion of debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total long-term portion of debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(a) |
|
|
(b) |
|
On December 4, 2019, the Company refinanced its five-year term loan and the revolving credit facility with the execution of the fifth amended and restated revolving credit facility agreement with a bank syndicate comprised of eleven participants, which enables the Company to borrow up to $
The Company can increase the revolving credit facility size by $200 million without the consent of the bank group. However, the bank group is not obligated to fund the $
All amounts outstanding under the fifth amended and restated revolving credit facility become due and payable on the facility termination date of December 4, 2024. The Term Loan is repayable in quarterly payments of $
The interest rate on the fifth amended and restated revolving credit facility and the Term Loan is based on a margin over LIBOR or a base rate. At March 31, 2021, the effective interest rate on the Term Loan was approximately
The commitment fee on the unused portion of the revolving credit facility is
The fifth 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
Certain restrictions are also imposed by the 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 March 31, 2021, $
18
At March 31, 2021, availability was $
12) Income Taxes
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 expense for the three and six months ended March 31, 2021, and March 31, 2020 are as follows:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
March 31, |
|
|
March 31, |
|
||||||||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Income before income taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Current income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (benefit) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Total income tax expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
At March 31, 2021, we did
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
13) Supplemental Disclosure of Cash Flow Information
|
|
|
Six Months Ended |
|
|||||
|
Cash paid during the period for: |
|
March 31, |
|
|||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
||
|
Income taxes, net |
|
$ |
|
|
|
$ |
|
|
|
Interest |
|
$ |
|
|
|
$ |
|
|
14) Commitments and Contingencies
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, 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.
19
15) Earnings Per Limited Partner Unit
The following table presents the net income allocation and per unit data:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
Basic and Diluted Earnings Per Limited Partner: |
|
March 31, |
|
|
March 31, |
|
||||||||||
|
(in thousands, except per unit data) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less General Partner’s interest in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to limited partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less dilutive impact of theoretical distribution of earnings * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partner’s interest in net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Per unit data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income available to limited partners |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less dilutive impact of theoretical distribution of earnings * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partner’s interest in net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Weighted average number of Limited Partner units outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
16) Subsequent Events
Acquisition
In April 2021, the Company purchased the customer list and assets of a heating oil dealer for an aggregate amount of approximately $
Quarterly Distribution Declared
In April 2021, we declared a quarterly distribution of $
20
ITEM 2.
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 severity and duration of the novel coronavirus, or COVID-19, pandemic, the pandemic’s impact on the U.S. and global economies, the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic, the effect of weather conditions on our financial performance, the price and supply of the products that we sell, the consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, 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 current and future supply needs, natural gas conversions, 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, potential cyber-attacks, general economic conditions and new technology. 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our Fiscal 2020 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 and in our Fiscal 2020 Form 10-K. Currently, one of the most significant factors, however, is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Company, its customers and counterparties, and the global economy and financial markets. The extent to which COVID-19 impacts us and our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the direct and indirect economic effects of the pandemic and containment measures, among others. All subsequent written and oral forward-looking statements attributable to the 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.
Impact of COVID 19 - A Global Pandemic on our Operations and Outlook
In December 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”). On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. The United States has declared a national emergency concerning the outbreak, which has adversely impacted global activity and contributed to significant declines and volatility in financial markets. Public health and governmental authorities nationally and in affected regions have taken and continue to take extraordinary and wide-ranging actions to contain and combat the outbreak and spread of COVID-19, including restrictions on travel and business operations, quarantines, and orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. Our business is concentrated in the Northeast and Mid-Atlantic sections of the United States. These areas have been and continue to be significantly impacted by the virus.
We have been designated by state and local governmental officials in the markets we serve as providing essential services during the COVID-19 pandemic. Therefore, we have continued to make fuel deliveries and provide emergency services to all areas in which we operate. We are closely monitoring all official pronouncements and executive orders concerning our status as an essential business. To date, we have not experienced any supply chain issues impacting our ability to deliver petroleum products to our customers. However, we are experiencing disruptions in the procurement of certain home generators. Since March 2020, we have implemented various measures in response to the COVID-19 pandemic, such as a majority of our office personnel working remotely. While these measures have not significantly impacted our ability to serve our customers to date, these measures may become strained or result in service delays.
As a result of the COVID-19 pandemic, and in order to protect the safety and health of our workforce and our customers, we have expanded certain employee benefit programs and will incur additional operating costs such as sanitizing our facilities, providing personal protective equipment for our employees and providing IT infrastructure to allow many office, clerical, sales and customer service employees to work from home. At this time, we expect the annual cost of these undertakings to be approximately $1.0 million.
21
The decline in economic activity impacted our motor fuels business in the third and fourth quarters of fiscal 2020 as well as the first and second quarter of fiscal 2021. While it has not yet materially impacted our ability to serve our customers, a combination of continued higher than normal unemployment benefits and an increased desire of prospective employees to work from home has impacted our ability to fully staff our customer service and sales functions. We cannot predict how long this staffing issue will continue, but the shortage in conjunction with any kind of spike in customer activity could cause unacceptable delays in response times and increase customer losses.
As of March 31, 2021, we had accounts receivable of $187.5 million, of which $148.6 million was due from residential customers and $38.9 million due from commercial customers. Our ability to borrow from our bank group is based in part on the aging of these accounts receivable. If past due balances that do not meet the eligibility tests as found in our fifth amended and restated credit agreement increase from historic levels, our future ability to borrow would be reduced.
The Company has taken advantage of certain tax and legislative actions which permitted the Company to defer certain payroll tax withholdings relating to calendar 2020 to calendar 2021 and 2022.
We believe COVID-19’s impact on our business, operating results, cash flows (including the collection of current and future accounts receivable) and/or financial condition primarily will be driven by the severity and duration of the pandemic, the pandemic’s impact on the U.S. and global economies, the price of petroleum products, and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic. We continue to monitor the effects of the pandemic on our business; however, the primary drivers are beyond our knowledge and control and, as a result, at this time we cannot reasonably estimate the ultimate adverse impact COVID-19 will have on our business, operating results, cash flows and/or financial condition going forward.
Impact on Liquidity of Increases and Decreases in Wholesale Product Cost
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. This may result in higher interest expense as a result of increased working capital borrowing to finance higher receivables and/or inventory balances. We may also incur higher bad debt expense and credit card processing costs as a result of higher selling prices as well as higher vehicle fuel costs due to the increase in energy costs. While our liquidity is impacted by initial margin requirements for new future positions used to hedge our inventory, it can also be adversely impacted by sudden and sharp changes in wholesale product costs. Likewise, our liquidity and collateral requirements are impacted by the fluctuating cost of options and swaps used to manage the market risks associated with our inventory and protected price customers.
Liquid Product Price Volatility
Volatility, which is reflected in the wholesale price of liquid products, including home heating oil, propane and motor fuels, has a larger impact on our business when prices rise. Consumers are price sensitive to heating cost increases, which can lead 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, and, most recently, the COVID-19 pandemic, and is closely linked to the price of diesel fuel. The volatility in the wholesale cost of diesel fuel as measured by the New York Mercantile Exchange (“NYMEX”), for the fiscal years ending September 30, 2017, through 2021, on a quarterly basis, is illustrated in the following chart (price per gallon):
|
|
|
Fiscal 2021 (a) |
|
|
Fiscal 2020 |
|
|
Fiscal 2019 |
|
|
Fiscal 2018 |
|
|
Fiscal 2017 |
|
|||||||||||||||||||||||||
|
Quarter Ended |
|
Low |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
High |
|
||||||||||
|
December 31 |
|
$ |
1.08 |
|
|
$ |
1.51 |
|
|
$ |
1.86 |
|
|
$ |
2.05 |
|
|
$ |
1.66 |
|
|
$ |
2.44 |
|
|
$ |
1.74 |
|
|
$ |
2.08 |
|
|
$ |
1.39 |
|
|
$ |
1.70 |
|
|
March 31 |
|
|
1.46 |
|
|
|
1.97 |
|
|
|
0.95 |
|
|
|
2.06 |
|
|
|
1.70 |
|
|
|
2.04 |
|
|
|
1.84 |
|
|
|
2.14 |
|
|
|
1.49 |
|
|
|
1.70 |
|
|
June 30 |
|
|
— |
|
|
|
— |
|
|
|
0.61 |
|
|
|
1.22 |
|
|
|
1.78 |
|
|
|
2.12 |
|
|
|
1.96 |
|
|
|
2.29 |
|
|
|
1.37 |
|
|
|
1.65 |
|
|
September 30 |
|
|
— |
|
|
|
— |
|
|
|
1.08 |
|
|
|
1.28 |
|
|
|
1.75 |
|
|
|
2.08 |
|
|
|
2.05 |
|
|
|
2.35 |
|
|
|
1.45 |
|
|
|
1.86 |
|
|
(a) |
On April 30, 2021, the NYMEX ultra low sulfur diesel contract closed at $1.92 per gallon or $0.41 per gallon higher than the average of $1.51 in the six months of Fiscal 2021. |
Income Taxes
Book versus Tax Deductions
The amount of cash flow generated in any given year depends upon a variety of factors including the amount of cash income taxes required, which will increase as 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. While we file our tax returns based on a calendar year, the amounts below are
22
based on our September 30 fiscal 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 |
|
||
|
2021 |
|
$ |
33,511 |
|
$ |
29,809 |
|
|
2022 |
|
|
29,073 |
|
|
22,225 |
|
|
2023 |
|
|
25,765 |
|
|
20,637 |
|
|
2024 |
|
|
21,452 |
|
|
19,980 |
|
|
2025 |
|
|
17,340 |
|
|
18,681 |
|
|
2026 |
|
|
13,368 |
|
|
17,943 |
|
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 the 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.
Under these contracts, we are entitled to a payment if the total number of degree days within the hedge period is less than the applicable “Payment Thresholds,” or strikes. The hedge period runs from November 1 through March 31, taken as a whole, for each respective fiscal year. For the six months ended March 31, 2021 and March 31, 2020 we recorded a $3.4 million benefit and a $10.1 million benefit, respectively.
For fiscal 2022, we entered into a weather hedging contract under which we are entitled to a payment capped at $7.5 million if degree days are less than the Payment Threshold. The hedge period runs from November 1, 2021 through March 31, 2022 taken as a whole.
Per Gallon Gross Profit Margins
We believe home heating oil and propane margins should be evaluated on a cents per gallon basis (before the effects of increases or decreases in the fair value of derivative instruments), as we believe that such per gallon margins are 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 set 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.
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 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 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.
23
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. Customer attrition percentage calculations include customers added through acquisitions in the denominators of the calculations on a weighted average basis. Gross customer losses are the result of a number of factors, including price competition, move-outs, credit losses, conversions to natural 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 economic impact of COVID-19 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 |
|
|||||||||||||||||||||||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Net |
|
|||
|
|
|
Gross Customer |
|
|
Gains / |
|
|
Gross Customer |
|
|
Gains / |
|
|
Gross Customer |
|
|
Gains / |
|
||||||||||||||||||
|
|
|
Gains |
|
|
Losses |
|
|
(Attrition) |
|
|
Gains |
|
|
Losses |
|
|
(Attrition) |
|
|
Gains |
|
|
Losses |
|
|
(Attrition) |
|
|||||||||
|
First Quarter |
|
|
19,100 |
|
|
|
19,900 |
|
|
|
(800 |
) |
|
|
23,900 |
|
|
|
23,100 |
|
|
|
800 |
|
|
|
26,200 |
|
|
|
25,400 |
|
|
|
800 |
|
|
Second Quarter |
|
|
12,600 |
|
|
|
17,800 |
|
|
|
(5,200 |
) |
|
|
12,600 |
|
|
|
18,200 |
|
|
|
(5,600 |
) |
|
|
12,600 |
|
|
|
22,300 |
|
|
|
(9,700 |
) |
|
Third Quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,000 |
|
|
|
13,600 |
|
|
|
(5,600 |
) |
|
|
7,100 |
|
|
|
15,900 |
|
|
|
(8,800 |
) |
|
Fourth Quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,700 |
|
|
|
15,800 |
|
|
|
(5,100 |
) |
|
|
13,200 |
|
|
|
20,600 |
|
|
|
(7,400 |
) |
|
Total |
|
|
31,700 |
|
|
|
37,700 |
|
|
|
(6,000 |
) |
|
|
55,200 |
|
|
|
70,700 |
|
|
|
(15,500 |
) |
|
|
59,100 |
|
|
|
84,200 |
|
|
|
(25,100 |
) |
Customer gains (attrition) as a percentage of home heating oil and propane customer base
|
|
|
Fiscal Year Ended |
|
|||||||||||||||||||||||||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Net |
|
|||
|
|
|
Gross Customer |
|
|
Gains / |
|
|
Gross Customer |
|
|
Gains / |
|
|
Gross Customer |
|
|
Gains / |
|
||||||||||||||||||
|
|
|
Gains |
|
|
Losses |
|
|
(Attrition) |
|
|
Gains |
|
|
Losses |
|
|
(Attrition) |
|
|
Gains |
|
|
Losses |
|
|
(Attrition) |
|
|||||||||
|
First Quarter |
|
|
4.4 |
% |
|
|
4.6 |
% |
|
|
(0.2 |
%) |
|
|
5.3 |
% |
|
|
5.1 |
% |
|
|
0.2 |
% |
|
|
5.8 |
% |
|
|
5.6 |
% |
|
|
0.2 |
% |
|
Second Quarter |
|
|
2.9 |
% |
|
|
4.1 |
% |
|
|
(1.2 |
%) |
|
|
2.8 |
% |
|
|
4.0 |
% |
|
|
(1.2 |
%) |
|
|
2.8 |
% |
|
|
5.0 |
% |
|
|
(2.2 |
%) |
|
Third Quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.8 |
% |
|
|
3.0 |
% |
|
|
(1.2 |
%) |
|
|
1.6 |
% |
|
|
3.5 |
% |
|
|
(1.9 |
%) |
|
Fourth Quarter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.3 |
% |
|
|
3.5 |
% |
|
|
(1.2 |
%) |
|
|
2.7 |
% |
|
|
4.2 |
% |
|
|
(1.5 |
%) |
|
Total |
|
|
7.3 |
% |
|
|
8.7 |
% |
|
|
(1.4 |
%) |
|
|
12.2 |
% |
|
|
15.6 |
% |
|
|
(3.4 |
%) |
|
|
12.9 |
% |
|
|
18.3 |
% |
|
|
(5.4 |
%) |
For the six months ended March 31, 2021, the Company lost 6,000 accounts (net), or 1.4% of its home heating oil and propane customer base, compared to 4,800 accounts lost (net), or 1.0% of its home heating oil and propane customer base, during the six months ended March 31, 2020. Gross customer gains were 4,800 less than the prior year’s comparable period, and gross customer losses were 3,600 accounts less. The 1,200 account increase in net customer attrition was negatively impacted by the sale of certain propane assets in October 2020, which generated approximately 1,000 accounts (net) through the six months ended March 31, 2020 as compared to approximately 100 accounts (net) in October 2020.
During the six months ended March 31, 2021, we estimate that we lost 0.7% of our home heating oil and propane accounts to natural gas conversions versus 0.7% for the six months ended March 31, 2020 and 0.8% six months ended March 31, 2019. Losses to natural gas in our footprint for the heating oil and propane industry could be greater or less than the Company’s estimates.
24
Acquisitions
The timing of acquisitions and the types of products sold by acquired companies impact year-over-year comparisons. As of March 31, 2021 the Company acquired two propane and two heating oil dealers, and in April 2021 acquired a heating oil dealer. During fiscal 2020 the Company acquired two heating oil dealers. The following tables detail the Company’s acquisition activity and the associated volume sold during the 12-month period prior to the date of acquisition.
|
(in thousands of gallons) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2021 Acquisitions |
|
|||||||||||||
|
Acquisition Number |
|
Month of Acquisition |
|
Home Heating Oil and Propane |
|
|
Other Petroleum Products |
|
|
Total |
|
|||
|
1 |
|
December |
|
|
5,452 |
|
|
|
— |
|
|
|
5,452 |
|
|
2 |
|
December |
|
|
1,318 |
|
|
|
— |
|
|
|
1,318 |
|
|
3 |
|
February |
|
|
305 |
|
|
|
— |
|
|
|
305 |
|
|
4 |
|
March |
|
|
1,163 |
|
|
|
— |
|
|
|
1,163 |
|
|
5 |
|
April |
|
|
4,509 |
|
|
|
166 |
|
|
|
4,675 |
|
|
|
|
|
|
|
12,747 |
|
|
|
166 |
|
|
|
12,913 |
|
|
(in thousands of gallons) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2020 Acquisitions |
|
|||||||||||||
|
Acquisition Number |
|
Month of Acquisition |
|
Home Heating Oil and Propane |
|
|
Other Petroleum Products |
|
|
Total |
|
|||
|
1 |
|
October |
|
|
1,085 |
|
|
|
— |
|
|
|
1,085 |
|
|
2 |
|
July |
|
|
2,400 |
|
|
|
— |
|
|
|
2,400 |
|
|
|
|
|
|
|
3,485 |
|
|
|
— |
|
|
|
3,485 |
|
Sale of Propane Assets
In October 2020 we sold certain propane assets, which included a customer list of approximately 12,300 customers, for $7.0 million. The following table details sales generated from the propane assets sold:
|
|
Years Ended September 30, |
|
|||||||||
|
(in thousands) |
2020 |
|
|
2019 |
|
|
2018 |
|
|||
|
Volume: |
|
|
|
|
|
|
|
|
|
|
|
|
Propane |
|
2,741 |
|
|
|
2,765 |
|
|
|
2,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum Products |
$ |
5,906 |
|
|
$ |
6,377 |
|
|
$ |
6,478 |
|
|
Installations and Services |
|
1,224 |
|
|
|
1,540 |
|
|
|
2,184 |
|
|
Total Sales |
$ |
7,130 |
|
|
$ |
7,917 |
|
|
$ |
8,662 |
|
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 our customers under a variable price-plan, the Company’s near term profitability, liquidity and cash flow will be adversely impacted. As of April 30, 2021, the wholesale cost of home heating oil as measured by the New York Mercantile Exchange was $1.92 per gallon, approximately $1.19 per gallon higher than at April 30, 2020. Based on these recent prices, our price-protected customers will be offered renewal contracts at significantly higher prices than last year which, may adversely impact the acceptance rate of these renewals.
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
25
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.
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 March 31, 2021
Compared to the Three Months Ended March 31, 2020
Volume
For the three months ended March 31, 2021, retail volume of home heating oil and propane sold increased by 21.4 million gallons, or 15.7%, to 157.6 million gallons, compared to 136.2 million gallons for the three months ended March 31, 2020. 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 three months ended March 31, 2021 were 16.2% colder than the three months ended March 31, 2020. Temperatures during the three months ended March 31, 2021 were 8.6% warmer than normal, as reported by NOAA. For the twelve months ended March 31, 2021, net customer attrition for the base business was 3.8%. 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 and Propane |
|
|
|
Volume - Three months ended March 31, 2020 |
|
|
136.2 |
|
|
Net customer attrition |
|
|
(6.5 |
) |
|
Impact of colder temperatures |
|
|
21.6 |
|
|
Acquisitions |
|
|
3.4 |
|
|
Sale of certain propane assets |
|
|
(1.0 |
) |
|
Other (a) |
|
|
3.9 |
|
|
Change |
|
|
21.4 |
|
|
Volume - Three months ended March 31, 2021 |
|
|
157.6 |
|
|
|
(a) |
Due to the timing of deliveries attributable in part to staffing efficiencies, this favorable volume variance may reduce expected volume in future periods. |
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 March 31, 2021, compared to the three months ended March 31, 2020:
|
|
|
Three Months Ended |
|
|||||
|
Customers |
|
March 31, 2021 |
|
|
March 31, 2020 |
|
||
|
Residential Variable |
|
|
44.0 |
% |
|
|
42.0 |
% |
|
Residential Price-Protected (Ceiling and Fixed Price) |
|
|
44.1 |
% |
|
|
45.5 |
% |
|
Commercial/Industrial |
|
|
11.9 |
% |
|
|
12.5 |
% |
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
Volume of motor fuel and other petroleum products sold decreased by 0.9 million gallons, or 2.4%, to 35.7 million gallons for the three months ended March 31, 2021, compared to 36.6 million gallons for the three months ended March 31, 2020 due to lower volume sales of motor fuels (1.1 million gallons) resulting from COVID-19’s impact on economic activity and the loss of certain accounts and partially offset by higher wholesale volume sales (0.2 million gallons) due to the colder weather. We believe that the decline in motor fuel sales may continue in the near term.
Product Sales
For the three months ended March 31, 2021, product sales increased by $58.1 million, or 12.1%, to $539.4 million, compared to $481.3 million for the three months ended March 31, 2020, reflecting an increase in total volume sold of 11.9%.
Installations and Services
For the three months ended March 31, 2021, installation and service revenue increased by $2.9 million, or 4.8%, to $64.7 million, compared to $61.8 million for the three months ended March 31, 2020. Service and installation sales increased largely due to an increase in installation sales.
27
Cost of Product
For the three months ended March 31, 2021, cost of product increased $28.2 million, or 9.9%, to $313.6 million, compared to $285.4 million for the three months ended March 31, 2020 due to the impact of an increase in total volume sold of 11.9% partially offset by a $0.0290 per gallon, or 1.8%, decrease in wholesale product cost.
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 three months ended March 31, 2021 increased by $0.0104 per gallon, to $1.3723 per gallon, from $1.3619 per gallon during the three months ended March 31, 2020. During the three months ended March 31, 2021, per gallon margins expanded despite rising wholesale product costs. In addition, the Company utilizes weighted average costing for computing cost of goods sold, which can delay the timing in which the effects of market changes in product costs are reflected in costs of goods because price changes are weighted into the average costing calculation rather than immediately realized. This favorably impacted product gross profit during the three months ended March 31, 2020 by $6.9 million due to declining product prices during the period. We cannot assume that the per gallon margins realized during fiscal 2021 are sustainable for future periods. Product sales and cost of product include home heating oil, propane, motor fuel, other petroleum products and liquidated damages billings.
|
|
|
Three Months Ended |
|
|||||||||||||
|
|
|
March 31, 2021 |
|
|
March 31, 2020 |
|
||||||||||
|
Home Heating Oil and Propane |
|
Amount (in millions) |
|
|
Per Gallon |
|
|
Amount (in millions) |
|
|
Per Gallon |
|
||||
|
Volume |
|
|
157.6 |
|
|
|
|
|
|
|
136.2 |
|
|
|
|
|
|
Sales |
|
$ |
466.4 |
|
|
$ |
2.9603 |
|
|
$ |
413.5 |
|
|
$ |
3.0358 |
|
|
Cost |
|
$ |
250.2 |
|
|
$ |
1.5880 |
|
|
$ |
228.0 |
|
|
$ |
1.6739 |
|
|
Gross Profit |
|
$ |
216.2 |
|
|
$ |
1.3723 |
|
|
$ |
185.5 |
|
|
$ |
1.3619 |
|
|
Motor Fuel and Other Petroleum Products |
|
Amount (in millions) |
|
|
Per Gallon |
|
|
Amount (in millions) |
|
|
Per Gallon |
|
||||
|
Volume |
|
|
35.7 |
|
|
|
|
|
|
|
36.6 |
|
|
|
|
|
|
Sales |
|
$ |
73.0 |
|
|
$ |
2.0438 |
|
|
$ |
67.8 |
|
|
$ |
1.8534 |
|
|
Cost |
|
$ |
63.4 |
|
|
$ |
1.7744 |
|
|
$ |
57.4 |
|
|
$ |
1.5683 |
|
|
Gross Profit |
|
$ |
9.6 |
|
|
$ |
0.2694 |
|
|
$ |
10.4 |
|
|
$ |
0.2851 |
|
|
Total Product |
|
Amount (in millions) |
|
|
|
|
Amount (in millions) |
|
|
|
||
|
Sales |
|
$ |
539.4 |
|
|
|
|
$ |
481.3 |
|
|
|
|
Cost |
|
$ |
313.6 |
|
|
|
|
$ |
285.4 |
|
|
|
|
Gross Profit |
|
$ |
225.8 |
|
|
|
|
$ |
195.9 |
|
|
|
For the three months ended March 31, 2021, total product gross profit was $225.8 million, which was $29.9 million, or 15.3%, greater than the three months ended March 31, 2020, as an increase in home heating oil and propane volume ($29.1 million) and an increase in home heating oil and propane margins ($1.6 million) was reduced by a slight decline in gross profit from motor fuel and other petroleum products ($0.8 million).
Cost of Installations and Services
Total installation costs for the three months ended March 31, 2021 increased by $1.7 million or 9.5%, to $19.3 million, compared to $17.6 million of installation costs for the three months ended March 31, 2020. Installation costs as a percentage of installation sales were 84.2% for the three months ended March 31, 2021 and 87.2% for the three months ended March 31, 2020.
Service expense increased by $1.4 million, or 3.2%, to $45.1 million for the three months ended March 31, 2021, representing 107.7% of service sales, versus $43.7 million, or 105.0% of service sales, for the three months ended March 31, 2020. We realized a combined gross profit from service and installation of $0.4 million for the three months ended March 31, 2021 compared to a gross profit of $0.5 million for the three months ended March 31, 2020, a $0.1 million decline in profitability. Management views the service and installation department on a combined basis because many overhead functions cannot be separated or precisely allocated to either service or installation billings.
28
(Increase) Decrease in the Fair Value of Derivative Instruments
During the three months ended March 31, 2021, the change in the fair value of derivative instruments resulted in an $8.2 million credit due to an increase in the market value for unexpired hedges (a $9.4 million credit), partially offset by a $1.2 million charge due to the expiration of certain hedged positions.
During the three months ended March 31, 2020, the change in the fair value of derivative instruments resulted in an $11.7 million charge due to a decrease in the market value for unexpired hedges (a $15.2 million charge) partially offset by a $3.5 million credit due to the expiration of certain hedged positions.
Delivery and Branch Expenses
For the three months ended March 31, 2021, delivery and branch expenses increased $15.4 million, or 18.1%, to $100.9 million, compared to $85.5 million for the three months ended March 31, 2020. Operating expenses increased by $13.6 million due to the impact of our weather hedging program. For the three months ended of March 31, 2021, we recorded a charge related to the program that increased delivery and branch expenses by $0.5 million. During the three months ended March 31, 2020, we recorded a benefit related to the program of $13.1 million. (The quarter ended March 31, 2020 was warmer than normal and resulted in reversing a $3.0 million expected payment by Star and recording a benefit to Star of $10.1 million for a total change of $13.1 million during the quarter.) Direct delivery expense rose by $3.3 million, or 9.9%, due to a 15.7% increase in home heating oil and propane volume and other operating costs decreased by $1.5 million, as lower bad debt and credit card processing fees ($1.4 million) and lower insurance expense ($1.3 million) was reduced by normal operating expense increases of $1.2 million.
Depreciation and Amortization Expenses
For the three months ended March 31, 2021, depreciation and amortization expenses decreased $0.8 million, or 9.0% to $8.3 million, compared to $9.1 million for the three months ended March 31, 2020 primarily due to lower amortization expense related to intangible assets that fully amortized in the prior fiscal year.
General and Administrative Expenses
For the three months ended March 31, 2021, general and administrative expenses increased by $0.9 million or 16.6%, to $6.3 million, from $5.4 million for the three months ended March 31, 2020, primarily due to higher profit sharing 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 March 31, 2021, finance charge income decreased to $0.8 million from $1.3 million for the three months ended March 31, 2020, primarily due to lower customer late payment charges resulting from lower past due receivable balances.
Interest Expense, Net
For the three months ended March 31, 2021, net interest expense decreased by $0.7 million, or 22.5%, to $2.1 million compared to $2.8 million for the three months ended March 31, 2020. The year-over-year change reflects a decrease in average borrowings of $21.9 million from $204.0 million for the three months ended March 31, 2020 to $182.1 million for the three months ended March 31, 2021, and a decrease in the weighted average interest rate from 4.7% for the three months ended March 31, 2020 to 3.4% for the three months ended March 31, 2021. To hedge against rising interest rates, the Company utilizes interest rate swaps. At March 31, 2021, $61.5 million, or 53%, of our long term debt, was fixed.
Amortization of Debt Issuance Costs
For the three months ended March 31, 2021, amortization of debt issuance cost was $0.2 million, essentially unchanged from the three months ended March 31, 2020.
29
Income Tax Expense
For the three months ended March 31, 2021, the Company’s income tax expense increased by $7.5 million to $32.2 million, from $24.7 million for the three months ended March 31, 2020, due primarily to an increase in income before income taxes of $34.2 million that was driven by an $19.9 million non-cash favorable change in the fair market value of derivative instruments and $12.9 million increase in Adjusted EBITDA, described below.
Net Income
For the three months ended March 31, 2021, Star’s net income increased $26.8 million, to $85.2 million, primarily due to a favorable change in the fair value of derivative instruments of $19.9 million, a $12.9 million increase in Adjusted EBITDA, described below, lower depreciation and amortization expense of $0.8 million, and partially offset by an increase in income tax expense of $7.5 million.
Adjusted EBITDA
For the three months ended March 31, 2021, Adjusted EBITDA increased by $12.9 million, to $119.7 million compared to the three months ended March 31, 2020. The impact of higher home heating oil and propane volume (15.7%) more than offset a $13.6 million decline in the benefit recorded from the weather hedge and an increase in total operating expenses of $2.7 million, or 3.0%. While 16.2% colder temperatures drove the increase in home heating oil and propane volume, the colder temperatures were also the primary driver of the $13.6 million decrease in the benefit recorded from the weather hedge.
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 provide additional information for evaluating the Company’s ability to make the Minimum Quarterly Distribution. EBITDA and Adjusted EBITDA are calculated as follows:
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
||
|
Net income |
|
$ |
85,164 |
|
|
$ |
58,408 |
|
|
Plus: |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
32,152 |
|
|
|
24,700 |
|
|
Amortization of debt issuance costs |
|
|
243 |
|
|
|
253 |
|
|
Interest expense, net |
|
|
2,136 |
|
|
|
2,756 |
|
|
Depreciation and amortization |
|
|
8,268 |
|
|
|
9,089 |
|
|
EBITDA (a) |
|
|
127,963 |
|
|
|
95,206 |
|
|
(Increase) / decrease in the fair value of derivative instruments |
|
|
(8,224 |
) |
|
|
11,670 |
|
|
Adjusted EBITDA (a) |
|
|
119,739 |
|
|
|
106,876 |
|
|
Add / (subtract) |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(32,152 |
) |
|
|
(24,700 |
) |
|
Interest expense, net |
|
|
(2,136 |
) |
|
|
(2,756 |
) |
|
Provision for losses on accounts receivable |
|
|
732 |
|
|
|
2,193 |
|
|
(Increase) decrease in accounts receivables |
|
|
(40,998 |
) |
|
|
16,183 |
|
|
(Increase) decrease in inventories |
|
|
(2,475 |
) |
|
|
27,435 |
|
|
Decrease in customer credit balances |
|
|
(34,434 |
) |
|
|
(16,564 |
) |
|
Change in deferred taxes |
|
|
9,022 |
|
|
|
(1,114 |
) |
|
Change in other operating assets and liabilities |
|
|
15,176 |
|
|
|
(5,087 |
) |
|
Net cash provided by operating activities |
|
$ |
32,474 |
|
|
$ |
102,466 |
|
|
Net cash used in investing activities |
|
$ |
(4,059 |
) |
|
$ |
(5,534 |
) |
|
Net cash used in financing activities |
|
$ |
(38,379 |
) |
|
$ |
(101,173 |
) |
30
|
(a) |
EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, other income (loss), net, multiemployer pension plan withdrawal charge, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that are used as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and research analysts, to assess: |
|
|
• |
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. |
31
Six Months Ended March 31, 2021
Compared to the Six Months Ended March 31, 2020
Volume
For the six months ended March 31, 2021, retail volume of home heating oil and propane sold increased by 3.8 million gallons, or 1.5%, to 247.1 million gallons, compared to 243.3 million gallons for the six months ended March 31, 2020. 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 six months ended March 31, 2021 were 2.9% colder than the six months ended March 31, 2020. Temperatures during the six months ended March 31, 2021 were 11.4% warmer than normal, as reported by NOAA. For the twelve months ended March 31, 2021, net customer attrition for the base business was 3.8%. 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 and Propane |
|
|
|
Volume - Six months ended March 31, 2020 |
|
|
243.3 |
|
|
Net customer attrition |
|
|
(11.5 |
) |
|
Impact of colder temperatures |
|
|
6.9 |
|
|
Acquisitions |
|
|
4.0 |
|
|
Sale of certain propane assets |
|
|
(1.8 |
) |
|
Other (a) |
|
|
6.2 |
|
|
Change |
|
|
3.8 |
|
|
Volume - Six months ended March 31, 2021 |
|
|
247.1 |
|
|
|
(a) |
Due to the timing of deliveries attributable in part to staffing efficiencies, this favorable volume variance may reduce expected volume in future periods. |
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 six months ended March 31, 2021, compared to the six months ended March 31, 2020:
|
|
|
Six Months Ended |
|
|||||
|
Customers |
|
March 31, 2021 |
|
|
March 31, 2020 |
|
||
|
Residential Variable |
|
|
43.5 |
% |
|
|
42.1 |
% |
|
Residential Price-Protected (Ceiling and Fixed Price) |
|
|
44.6 |
% |
|
|
45.6 |
% |
|
Commercial/Industrial |
|
|
11.9 |
% |
|
|
12.3 |
% |
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
Volume of motor fuel and other petroleum products sold decreased by 4.6 million gallons, or 5.9%, to 73.4 million gallons for the six months ended March 31, 2021, compared to 78.0 million gallons for the six months ended March 31, 2020 due to lower volume sales of motor fuels (4.3 million gallons) resulting from COVID-19’s impact on economic activity and the loss of certain accounts and lower wholesale volume sales (0.3 million gallons). We believe that the decline in motor fuel sales may continue in the near term.
Product Sales
For the six months ended March 31, 2021, product sales decreased by $0.1 billion, or 8.1%, to $0.8 billion, compared to $0.9 billion for the six months ended March 31, 2020, largely due to a decrease in wholesale product cost of $0.2676 per gallon, or 15.0%.
Installations and Services
For the six months ended March 31, 2021, installation and service revenue decreased by $0.3 million, or 0.2%, to $137.7 million, compared to $138.0 million for the six months ended March 31, 2020.
32
Cost of Product
For the six months ended March 31, 2021, cost of product decreased $87.3 million, or 15.2%, to $485.7 million, compared to $573.0 million for the six months ended March 31, 2020 due to the impact of a $0.2676 per gallon, or 15.0%, decrease in wholesale product cost.
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 six months ended March 31, 2021 increased by $0.0374 per gallon, to $1.3529 per gallon, from $1.3155 per gallon during the six months ended March 31, 2020. During the six months ended March 31, 2021, per gallon margins expanded despite rising wholesale product costs. In addition, the Company utilizes weighted average costing for computing cost of goods sold, which can delay the timing in which the effects of market changes in product costs are reflected in costs of goods because price changes are weighted into the average costing calculation rather than immediately realized. This favorably impacted product gross profit during the six months ended March 31, 2020 by $6.9 million due to declining product prices during the period. We cannot assume that the per gallon margins realized during fiscal 2021 are sustainable for future periods. Product sales and cost of product include home heating oil, propane, motor fuel, other petroleum products and liquidated damages billings.
|
|
|
Six Months Ended |
|
|||||||||||||
|
|
|
March 31, 2021 |
|
|
March 31, 2020 |
|
||||||||||
|
Home Heating Oil and Propane |
|
Amount (in millions) |
|
|
Per Gallon |
|
|
Amount (in millions) |
|
|
Per Gallon |
|
||||
|
Volume |
|
|
247.1 |
|
|
|
|
|
|
|
243.3 |
|
|
|
|
|
|
Sales |
|
$ |
707.2 |
|
|
$ |
2.8623 |
|
|
$ |
756.8 |
|
|
$ |
3.1102 |
|
|
Cost |
|
$ |
372.9 |
|
|
$ |
1.5094 |
|
|
$ |
436.7 |
|
|
$ |
1.7947 |
|
|
Gross Profit |
|
$ |
334.3 |
|
|
$ |
1.3529 |
|
|
$ |
320.1 |
|
|
$ |
1.3155 |
|
|
Motor Fuel and Other Petroleum Products |
|
Amount (in millions) |
|
|
Per Gallon |
|
|
Amount (in millions) |
|
|
Per Gallon |
|
||||
|
Volume |
|
|
73.4 |
|
|
|
|
|
|
|
78.0 |
|
|
|
|
|
|
Sales |
|
$ |
132.5 |
|
|
$ |
1.8054 |
|
|
$ |
157.2 |
|
|
$ |
2.0143 |
|
|
Cost |
|
$ |
112.8 |
|
|
$ |
1.5365 |
|
|
$ |
136.3 |
|
|
$ |
1.7471 |
|
|
Gross Profit |
|
$ |
19.7 |
|
|
$ |
0.2689 |
|
|
$ |
20.9 |
|
|
$ |
0.2672 |
|
|
Total Product |
|
Amount (in millions) |
|
|
|
|
Amount (in millions) |
|
|
|
||
|
Sales |
|
$ |
839.7 |
|
|
|
|
$ |
914.0 |
|
|
|
|
Cost |
|
$ |
485.7 |
|
|
|
|
$ |
573.0 |
|
|
|
|
Gross Profit |
|
$ |
354.0 |
|
|
|
|
$ |
341.0 |
|
|
|
For the six months ended March 31, 2021, total product gross profit was $354.0 million, which was $13.0 million, or 3.8% more than for the six months ended March 31, 2020, as a $4.9 million increase in home heating oil and propane volume and $9.3 million increase in home heating oil and propane margins were slightly reduced by a $1.2 million decrease in gross profit from motor fuel and other petroleum products.
Cost of Installations and Services
Total installation costs for the six months ended March 31, 2021 increased by $0.4 million or 1.0%, to $42.8 million, compared to $42.4 million of installation costs for the six months ended March 31, 2020. Installation costs as a percentage of installation sales were 80.9% for the six months ended March 31, 2021 and 83.5% for the six months ended March 31, 2020.
Service expense decreased by $1.7 million, or 1.9%, to $90.9 million for the six months ended March 31, 2021, representing 107.2% of service sales, versus $92.6 million, or 106.0% of service sales, for the six months ended March 31, 2020. We realized a combined gross profit from service and installation of $4.1 million for the six months ended March 31, 2021 compared to a gross profit of $3.1 million for the six months ended March 31, 2020, a $1.0 million improvement in profitability. Management views the service and installation department on a combined basis because many overhead functions cannot be separated or precisely allocated to either service or installation billings.
33
(Increase) Decrease in the Fair Value of Derivative Instruments
During the six months ended March 31, 2021, the change in the fair value of derivative instruments resulted in a $25.6 million credit consisting of a $13.6 million credit due to an increase in the market value for unexpired hedges and a $12.0 million credit due to the expiration of certain hedged positions.
During the six months ended March 31, 2020, the change in the fair value of derivative instruments resulted in a $5.3 million charge consisting of a $14.0 million charge due to a decrease in the market value for unexpired hedges partially offset by an $8.7 million credit due to the expiration of certain hedged positions.
Delivery and Branch Expenses
For the six months ended March 31, 2021, delivery and branch expenses decreased $0.6 million, or 0.3%, to $181.6 million, compared to $182.2 million for the six months ended March 31, 2020, as an unfavorable $6.7 million change in the benefit recorded from the weather hedge was more than offset by a reduction in operating costs of $7.3 million, or 4.0%. The benefit recorded from the weather hedge of $3.4 million reduced delivery and branch expenses versus the prior year comparable year’s quarter in which we recorded a weather hedge benefit of $10.1 million. The 4.0% reduction in operating costs compares favorably to the 1.5% increase in home heating oil and propane volume. Lower bad debt and credit card processing fees ($3.0 million), lower insurance expense ($3.0 million) and other expense savings of $1.3 million drove the $7.3 million reduction in operating costs.
Depreciation and Amortization Expenses
For the six months ended March 31, 2021, depreciation and amortization expenses decreased $1.9 million, or 10.6% to $16.2 million, compared to $18.1 million for the six months ended March 31, 2020, primarily due to lower amortization expense related to intangible assets that fully amortized in the prior fiscal year.
General and Administrative Expenses
For the six months ended March 31, 2021, general and administrative expenses increased by $0.7 million or 5.3% to $12.6 million from $11.9 million for the six months ended March 31, 2020, primarily due to higher profit sharing expense. The Company accrues approximately 6.0% of Adjusted EBITDA as defined in its profit sharing plan for distribution to its employees, and 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 six months ended March 31, 2021, finance charge income decreased to $1.2 million from $2.0 million for the six months ended March 31, 2020, primarily due to lower customer late payment charges resulting from lower past due receivable balances.
Interest Expense, Net
For the six months ended March 31, 2021, net interest expense decreased by $1.4 million, or 26.6%, to $4.0 million compared to $5.4 million for the six months ended March 31, 2020. The year-over-year change reflects a decrease in average borrowings of $37.8 million from $194.0 million for the six months ended March 31, 2020 to $156.2 million for the six months ended March 31, 2021, and a decrease in the weighted average interest rate from 4.9% for the six months ended March 31, 2020 to 3.8% for the six months ended March 31, 2021. To hedge against rising interest rates, the Company utilizes interest rate swaps. At March 31, 2021, $61.5 million, or 53%, of our long term debt, was fixed.
Amortization of Debt Issuance Costs
For the six months ended March 31, 2021, amortization of debt issuance cost was $0.5 million, essentially unchanged from the six months ended March 31, 2020.
Income Tax Expense
For the six months ended March 31, 2021, the Company’s income tax expense increased by $10.5 million to $47.0 million, from $36.5 million for the six months ended March 31, 2020, due primarily to an increase in income before income taxes of $47.4 million that was driven by an $30.9 million non-cash favorable change in the fair market value of derivative instruments.
34
Net Income
For the six months ended March 31, 2021, Star’s net income increased $36.9 million, to $123.0 million, primarily due to a favorable change in the fair value of derivative instruments of $30.9 million, a $13.1 million increase in Adjusted EBITDA, described below, and lower depreciation and amortization expense of $1.9 million, partially offset by an increase in income tax expense of $10.5 million.
Adjusted EBITDA
For the six months ended March 31, 2021, Adjusted EBITDA increased by $13.1 million, to $165.1 million compared to the six months ended March 31, 2020. The impact of slightly higher home heating oil and propane volume (1.5%) an increase in home heating oil and propane margins ($0.0374 per gallon) and lower total operating expenses ($6.6 million) more than offset a $6.7 million decline in the benefit recorded from the weather hedge. While colder temperatures of 2.9% drove the increase in home heating oil and propane volume, the colder temperatures was also the primary driver of the decrease in the benefit ($6.7 million) under our weather hedges.
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 provide additional information for evaluating the Company’s ability to make the Minimum Quarterly Distribution. EBITDA and Adjusted EBITDA are calculated as follows:
|
|
|
Six Months Ended March 31, |
|
|||||
|
(in thousands) |
|
2021 |
|
|
2020 |
|
||
|
Net income |
|
$ |
123,024 |
|
|
$ |
86,163 |
|
|
Plus: |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
46,980 |
|
|
|
36,482 |
|
|
Amortization of debt issuance costs |
|
|
490 |
|
|
|
488 |
|
|
Interest expense, net |
|
|
3,987 |
|
|
|
5,435 |
|
|
Depreciation and amortization |
|
|
16,225 |
|
|
|
18,139 |
|
|
EBITDA (a) |
|
|
190,706 |
|
|
|
146,707 |
|
|
(Increase) / decrease in the fair value of derivative instruments |
|
|
(25,619 |
) |
|
|
5,253 |
|
|
Adjusted EBITDA (a) |
|
|
165,087 |
|
|
|
151,960 |
|
|
Add / (subtract) |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(46,980 |
) |
|
|
(36,482 |
) |
|
Interest expense, net |
|
|
(3,987 |
) |
|
|
(5,435 |
) |
|
Provision for losses on accounts receivable |
|
|
256 |
|
|
|
3,203 |
|
|
Increase in accounts receivables |
|
|
(103,987 |
) |
|
|
(69,562 |
) |
|
(Increase) decrease in inventories |
|
|
(9,652 |
) |
|
|
12,008 |
|
|
Decrease in customer credit balances |
|
|
(43,421 |
) |
|
|
(32,462 |
) |
|
Change in deferred taxes |
|
|
12,623 |
|
|
|
222 |
|
|
Change in other operating assets and liabilities |
|
|
35,534 |
|
|
|
27,423 |
|
|
Net cash provided by operating activities |
|
$ |
5,473 |
|
|
$ |
50,875 |
|
|
Net cash used in investing activities |
|
$ |
(39,962 |
) |
|
$ |
(13,197 |
) |
|
Net cash used in financing activities |
|
$ |
(13,539 |
) |
|
$ |
(32,276 |
) |
|
(a) |
EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, other income (loss), net, multiemployer pension plan withdrawal charge, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that are used as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and research analysts, to assess: |
|
|
• |
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. |
35
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 six months ended March 31, 2021, cash provided by operating activities decreased $45.4 million to $5.5 million, compared to $50.9 million of cash provided by operating activities during the six months ended March 31, 2020. The decrease was driven by a $45.4 million unfavorable change in accounts receivable (including customer credit balances) due to colder temperatures and higher sales volume in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020, a $21.7 million unfavorable change in inventory due primarily to the higher cost of liquid product on hand as of March 31, 2021 as compared to March 31, 2020, a $12.6 million unfavorable change in amounts receivable/accrued for settled derivative contracts due primary to higher NYMEX ultra low sulfur diesel contract pricing as of March 31, 2021 as compared to March 31, 2020, and $0.3 million of other changes in working capital, that was partially offset by a $20.2 million increase in cash flows from operations, and a $14.4 million favorable change in accounts payable due to the pricing and timing of inventory purchases.
Investing Activities
During the six months ended March 31, 2021, the Company acquired two propane and two heating oil dealers for an aggregate of approximately $39.3 million; $38.4 million in cash and $0.9 million of deferred liabilities. The gross purchase price was allocated $34.2 million to intangible assets, $5.9 million to fixed assets and reduced by $0.8 million in working capital credits.
Our capital expenditures for the six months ended March 31, 2021 totaled $7.2 million, as we invested in computer hardware and software ($1.0 million), refurbished certain physical plants ($1.4 million), expanded our propane operations ($1.1 million) and made additions to our fleet and other equipment ($3.7 million).
During the six months ended March 31, 2021, $0.6 million of earnings were reinvested into the irrevocable trust. The cash deposited into the trust is shown on our balance sheet as captive insurance collateral and, correspondingly, reduced cash on our balance sheet. We believe that investments into the irrevocable trust 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.
On October 27, 2020, the Company sold certain propane assets for cash proceeds of $6.1 million.
Our capital expenditures for the six months ended March 31, 2020 totaled $5.7 million, as we invested in computer hardware and software ($1.4 million), refurbished certain physical plants ($1.4 million), expanded our propane operations ($1.0 million) and made additions to our fleet and other equipment ($1.9 million). During the six months ended March 31, 2020, we also deposited $6.4 million into an irrevocable trust to secure certain liabilities for our captive insurance company and another $0.8 million of earnings were reinvested into the irrevocable trust. During the six months ended March 31, 2020, the Company acquired the customer list and the assets of a heating oil dealer for an aggregate purchase price of approximately $0.5 million.
Financing Activities
During the six months ended March 31, 2021, we repaid $6.5 million of our term loan, borrowed $75.2 million under our revolving credit facility and subsequently repaid $40.2 million, repurchased 3.1 million Common Units for $30.5 million primarily in
36
connection with our unit repurchase plan, and paid distributions of $11.1 million to our Common Unit holders and $0.5 million to our General Partner unit holders (including $0.4 million of incentive distributions as provided in our Partnership Agreement).
During the six months ended March 31, 2020, we refinanced our five-year term loan and the revolving credit facility with the execution of the fifth amended and restated revolving credit facility agreement. The $130 million of proceeds from the new term loan were used to repay the $90.0 million outstanding balance of the term loan, $39.0 million of the revolving credit facility borrowings under the old credit facility, and $1.0 million of debt issuance costs. We also paid an additional $0.3 million of debt issuance costs, borrowed an additional net balance of $1.5 million under our revolving credit facility, repaid $2.5 million of our term loan, repurchased 2.1 million Common Units for $18.6 million in connection with our unit repurchase plan, and paid distributions of $11.8 million to our Common Unit holders and $0.4 million to our General Partner unit holders (including $0.4 million of incentive distributions as provided in our Partnership Agreement).
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, and business conditions, especially in light of the impact of COVID-19, weather, the ability to collect current and 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 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 March 31, 2021 ($8.9 million) or a combination thereof. To the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we anticipate that working capital will be financed by our revolving credit facility, as discussed below, and from subsequent seasonal reductions in inventory and accounts receivable. As of March 31, 2021, we had accounts receivable of $187.5 million of which $148.6 million is due from residential customers and $38.9 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 found in our fifth 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 March 31, 2021, we had $35.0 million in borrowings under our revolving credit facility, $117.0 million outstanding under our term loan, and $3.5 million in letters of credit outstanding.
Under the terms of the fifth amended and restated credit agreement, we must maintain at all times Availability (borrowing base less amounts borrowed and letters of credit issued) of 15% of the maximum facility size and a fixed charge coverage ratio of not less than 1.15. We must also maintain a senior secured leverage ratio that cannot be more than 3.0 as of June 30th or September 30th, and no more than 4.5 as of December 31st or March 31st. As of March 31, 2021, Availability, as defined in the fifth amended and restated revolving credit facility agreement, was $225.5 million and we were in compliance with the fixed charge coverage ratio and senior secured leverage ratio.
Maintenance capital expenditures for the remainder of fiscal 2021 are estimated to be approximately $10.0 million to $12.0 million, excluding the capital requirements for leased fleet. In addition, we plan to invest approximately $0.5 million to $0.9 million in our propane operations. Distributions for the balance of fiscal 2021, at the current quarterly level of $0.1425 per unit, would result in aggregate payments of approximately $11.5 million to Common Unit holders, $0.5 million to our General Partner (including $0.5 million of incentive distribution as provided for in our Partnership Agreement) and $0.5 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. Under the terms of our credit facility, our term loan is repayable in quarterly payments of $3.25 million. Over the last two fiscal years, the Company was required to deposit on average $9.2 million into our captive insurance company as collateral. For fiscal 2021, we are not required to make any additional deposits. Further, subject to any additional liquidity issues or concerns resulting from the current COVID-19 pandemic, 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, 2020 Form 10-K disclosure and therefore, the table has not been included in this Form 10-Q.
Recent Accounting Pronouncements
Refer to Note 2 – Summary of Significant Accounting Policies for discussion regarding the impact of accounting standards that were recently adopted and issued but not yet effective, on our consolidated financial statements.
37
Item 3.
Quantitative and Qualitative Disclosures About Market 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 March 31, 2021, we had outstanding borrowings totaling $152.0 million, which 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 million.
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 March 31, 2021, the potential impact on our hedging activity would be to increase the fair market value of these outstanding derivatives by $5.6 million to a fair market value of $17.8 million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the fair market value of these outstanding derivatives by $4.5 million to a fair market value of $7.7 million.
Item 4.
Controls and Procedures
a) Evaluation of disclosure controls and procedures
The General Partner’s chief executive officer and 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 March 31, 2021. 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 March 31, 2021 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 control over financial reporting
No changes 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 the General Partner have concluded, as of March 31, 2021, that our disclosure controls and procedures were effective in achieving that level of reasonable assurance.
38
PART II OTHER INFORMATION
Item 1.
Legal Proceedings
In the opinion of management, we are not a party to any litigation, which individually or in the aggregate could reasonably be expected to have a material adverse effect on our results of operations, financial position or liquidity.
Item 1A.
Risk Factors
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 2020 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.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Note 4 to the Condensed Consolidated Financial Statements concerning the Company’s repurchase of Common Units during the six months ended March 31, 2021 is incorporated into this Item 2 by reference.
39
Item 6.
Exhibits
|
(a) |
Exhibits Included Within: |
|
|
|
|
10.1 |
|
|
|
|
|
31.1 |
Certification of Chief Executive Officer, Star Group, L.P., pursuant to Rule 13a-14(a)/15d-14(a). |
|
|
|
|
31.2 |
Certification of Chief Financial Officer, Star Group, L.P., pursuant to Rule 13a-14(a)/15d-14(a). |
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101 |
The following materials from the Star Group, L.P. Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Partners’ Capital, (v) the Condensed Consolidated Statements of Cash Flows and (vi) related notes. |
|
|
|
|
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) |
40
SIGNATURES
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 Kestrel Heat LLC (Principal Financial Officer) |
|
May 5, 2021 |
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
|
/s/ Cory A. Czekanski Cory A. Czekanski |
|
Vice President – Controller Kestrel Heat LLC (Principal Accounting Officer) |
|
May 5, 2021 |
41