sgu-10q_20171231.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2017

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: 001-14129

 

STAR GROUP, L.P.

(Exact name of registrants as specified in its charters)

 

 

Delaware

06-1437793

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

9 West Broad Street

Stamford, Connecticut

06902

(Address of principal executive office)

 

(203) 328-7310

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non- accelerated filer

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

At January 31, 2018, the registrant had 55,887,832 Common Units outstanding.

 

 

 

 


STAR GROUP, L.P. AND SUBSIDIARIES

INDEX TO FORM 10-Q

 

 

 

Page

Part I Financial Information

 

 

Item 1 - Condensed Consolidated Financial Statements

 

3

Condensed Consolidated Balance Sheets as of December 31, 2017 (unaudited) and September 30, 2017

 

3

Condensed Consolidated Statements of Operations (unaudited) for the three months ended December 31, 2017 and December 31, 2016

 

4

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended December 31, 2017 and December 31, 2016

 

5

Condensed Consolidated Statement of Partners’ Capital (unaudited) for the three months ended December 31, 2017

 

6

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended December 31, 2017 and December 31, 2016

 

7

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8-19

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20-31

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4 - Controls and Procedures

 

32

Part II Other Information:

 

 

Item 1 - Legal Proceedings

 

33

Item 1A - Risk Factors

 

33

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

 

33

Item 6 - Exhibits

 

34

Signatures

 

35

 

2


Part I. FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

December 31,

 

 

September 30,

 

 

 

2017

 

 

2017

 

(in thousands)

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,139

 

 

$

52,458

 

Receivables, net of allowance of $5,919 and $5,540, respectively

 

 

192,559

 

 

 

96,603

 

Inventories

 

 

71,504

 

 

 

59,596

 

Fair asset value of derivative instruments

 

 

19,220

 

 

 

5,932

 

Prepaid expenses and other current assets

 

 

34,858

 

 

 

26,652

 

Total current assets

 

 

339,280

 

 

 

241,241

 

Property and equipment, net

 

 

79,538

 

 

 

79,673

 

Goodwill

 

 

225,978

 

 

 

225,915

 

Intangibles, net

 

 

100,643

 

 

 

105,218

 

Restricted cash

 

 

250

 

 

 

250

 

Captive insurance collateral (1)

 

 

45,803

 

 

 

11,777

 

Deferred charges and other assets, net

 

 

11,768

 

 

 

9,843

 

Total assets

 

$

803,260

 

 

$

673,917

 

LIABILITIES AND PARTNERS’ CAPITAL

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

53,259

 

 

$

26,739

 

Revolving credit facility borrowings

 

 

79,149

 

 

 

-

 

Fair liability value of derivative instruments

 

 

-

 

 

 

289

 

Current maturities of long-term debt

 

 

10,000

 

 

 

10,000

 

Accrued expenses and other current liabilities

 

 

119,681

 

 

 

108,449

 

Unearned service contract revenue

 

 

68,583

 

 

 

60,133

 

Customer credit balances

 

 

52,477

 

 

 

66,723

 

Total current liabilities

 

 

383,149

 

 

 

272,333

 

Long-term debt

 

 

63,278

 

 

 

65,717

 

Deferred tax liabilities, net

 

 

3,535

 

 

 

6,140

 

Other long-term liabilities

 

 

23,037

 

 

 

23,659

 

Partners’ capital

 

 

 

 

 

 

 

 

Common unitholders

 

 

349,621

 

 

 

325,762

 

General partner

 

 

(908

)

 

 

(929

)

Accumulated other comprehensive loss, net of taxes

 

 

(18,452

)

 

 

(18,765

)

Total partners’ capital

 

 

330,261

 

 

 

306,068

 

Total liabilities and partners’ capital

 

$

803,260

 

 

$

673,917

 

 

(1)

See Note 2 – Captive insurance collateral

See accompanying notes to condensed consolidated financial statements.

 

3


STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended

December 31,

 

(in thousands, except per unit data - unaudited)

 

2017

 

 

2016

 

Sales:

 

 

 

 

 

 

 

 

Product

 

$

366,734

 

 

$

316,291

 

Installations and services

 

 

70,100

 

 

 

67,827

 

Total sales

 

 

436,834

 

 

 

384,118

 

Cost and expenses:

 

 

 

 

 

 

 

 

Cost of product

 

 

242,780

 

 

 

199,593

 

Cost of installations and services

 

 

69,555

 

 

 

66,487

 

(Increase) decrease in the fair value of derivative instruments

 

 

(11,400

)

 

 

(8,551

)

Delivery and branch expenses

 

 

91,204

 

 

 

81,133

 

Depreciation and amortization expenses

 

 

7,741

 

 

 

6,561

 

General and administrative expenses

 

 

6,651

 

 

 

6,353

 

Finance charge income

 

 

(763

)

 

 

(695

)

Operating income

 

 

31,066

 

 

 

33,237

 

Interest expense, net

 

 

(2,087

)

 

 

(1,787

)

Amortization of debt issuance costs

 

 

(309

)

 

 

(312

)

Income before income taxes

 

 

28,670

 

 

 

31,138

 

Income tax (benefit) expense

 

 

(1,512

)

 

 

12,863

 

Net income

 

$

30,182

 

 

$

18,275

 

General Partner’s interest in net income

 

175

 

 

 

105

 

Limited Partners’ interest in net income

 

$

30,007

 

 

$

18,170

 

 

 

 

 

 

 

 

 

 

Basic and diluted income per Limited Partner Unit (1):

 

$

0.45

 

 

$

0.28

 

Weighted average number of Limited Partner units outstanding:

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

55,887

 

 

 

55,887

 

 

(1)

See Note 13 - Earnings Per Limited Partner Unit.

See accompanying notes to condensed consolidated financial statements.

 

4


STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

Three Months Ended

December 31,

 

(in thousands - unaudited)

 

2017

 

 

2016

 

Net income

 

$

30,182

 

 

$

18,275

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gain on pension plan obligation (1)

 

 

448

 

 

 

534

 

Tax effect of unrealized gain on pension plan

 

 

(135

)

 

 

(216

)

Total other comprehensive income

 

 

313

 

 

 

318

 

Total comprehensive income

 

$

30,495

 

 

$

18,593

 

 

(1)

This item is included in the computation of net periodic pension cost.    

See accompanying notes to condensed consolidated financial statements.

 

5


STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

 

 

 

Number of Units

 

 

 

 

 

 

 

 

 

 

Accum. Other

 

 

Total

 

(in thousands - unaudited)

 

Common

 

 

General

Partner

 

 

Common

 

 

General

Partner

 

 

Comprehensive

Income (Loss)

 

 

Partners’

Capital

 

Balance as of September 30, 2017

 

 

55,887

 

 

 

326

 

 

$

325,762

 

 

$

(929

)

 

$

(18,765

)

 

$

306,068

 

Net income

 

 

-

 

 

 

-

 

 

 

30,007

 

 

175

 

 

 

-

 

 

 

30,182

 

Unrealized gain on pension plan obligation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

448

 

 

 

448

 

Tax effect of unrealized gain on pension plan

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(135

)

 

 

(135

)

Distributions

 

 

-

 

 

 

-

 

 

 

(6,148

)

 

 

(154

)

 

 

-

 

 

 

(6,302

)

Balance as of December 31, 2017 (unaudited)

 

 

55,887

 

 

 

326

 

 

$

349,621

 

 

$

(908

)

 

$

(18,452

)

 

$

330,261

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

6


STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended

December 31,

 

(in thousands - unaudited)

 

2017

 

 

2016

 

Cash flows provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

30,182

 

 

$

18,275

 

Adjustment to reconcile net income to net cash provided by (used in)

   operating activities:

 

 

 

 

 

 

 

 

(Increase) decrease in fair value of derivative instruments

 

 

(11,400

)

 

 

(8,551

)

Depreciation and amortization

 

 

8,050

 

 

 

6,873

 

Provision for losses on accounts receivable

 

 

311

 

 

 

31

 

Change in deferred taxes

 

 

(2,740

)

 

 

3,941

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Increase in receivables

 

 

(96,193

)

 

 

(76,845

)

Increase in inventories

 

 

(11,886

)

 

 

(16,248

)

Increase in other assets

 

 

(12,411

)

 

 

(3,294

)

Increase in accounts payable

 

 

27,158

 

 

 

21,725

 

Decrease in customer credit balances

 

 

(14,294

)

 

 

(22,805

)

Increase in other current and long-term liabilities

 

 

19,987

 

 

 

11,392

 

Net cash used in operating activities

 

 

(63,236

)

 

 

(65,506

)

Cash flows provided by (used in) investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(3,604

)

 

 

(4,521

)

Proceeds from sales of fixed assets

 

 

88

 

 

 

34

 

Purchase of investments (1)

 

 

(34,151

)

 

 

(11,474

)

Acquisitions

 

 

(224

)

 

 

(5,835

)

Net cash used in investing activities

 

 

(37,891

)

 

 

(21,796

)

Cash flows provided by (used in) financing activities:

 

 

 

 

 

 

 

 

Revolving credit facility borrowings

 

 

79,149

 

 

 

-

 

Term loan repayment

 

 

(2,500

)

 

 

(8,700

)

Distributions

 

 

(6,302

)

 

 

(5,860

)

Customer retainage payments

 

 

(539

)

 

 

-

 

Net cash provided by (used in) financing activities

 

 

69,808

 

 

 

(14,560

)

Net decrease in cash, cash equivalents, and restricted cash

 

 

(31,319

)

 

 

(101,862

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

52,708

 

 

 

139,188

 

Cash, cash equivalents, and restricted cash at end of period

 

$

21,389

 

 

$

37,326

 

 

(1)

See Note 2 – Captive insurance collateral

See accompanying notes to condensed consolidated financial statements.

 

7


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 products and services to residential and commercial customers. The Company also services and sells heating and air conditioning equipment to its home heating oil and propane customers and to a lesser extent, provides these offerings to customers outside of our home heating oil and propane customer base. In certain of our marketing areas, we provide home security and plumbing services primarily to our home heating oil and propane customer base. We also sell diesel fuel, gasoline and home heating oil on a delivery only basis. These products and services are offered through our home heating oil and propane locations. The Company has one reportable segment for accounting purposes. We believe we are the nation’s largest retail distributor of home heating oil based upon sales volume. Including our propane locations, we serve customers in the more northern and eastern states within the Northeast, Central and Southeast U.S. regions.

The Company is organized as follows:

 

Star is a limited partnership, which at December 31, 2017, had outstanding 55.9 million Common Units (NYSE: “SGU”), representing a 99.4% limited partner interest in Star, and 0.3 million general partner units, representing a 0.6% general partner interest in Star. Our general partner is Kestrel Heat, LLC, a Delaware limited liability company (“Kestrel Heat” or the “general partner”). The Board of Directors of Kestrel Heat (the “Board”) is appointed by its sole member, Kestrel Energy Partners, LLC, a Delaware limited liability company (“Kestrel”).

 

Star owns 100% of Star Acquisitions, Inc. (“SA”), a Minnesota corporation that owns 100% of Petro Holdings, Inc. (“Petro”). SA and its subsidiaries are subject to Federal and state corporate income taxes. Star’s operations are conducted through Petro and its subsidiaries. Petro is primarily a Northeast, Central and Southeast region retail distributor of home heating oil and propane that at December 31, 2017 served approximately 461,000 full-service residential and commercial home heating oil and propane customers. Petro also sold diesel fuel, gasoline and home heating oil to approximately 76,000 customers on a delivery only basis. We installed, maintained, and repaired heating and air conditioning equipment and to a lesser extent provided these services outside our customer base including 14,000 service contracts for natural gas and other heating systems. In addition, we provided home security and plumbing, to approximately 31,000 customers.

 

Petroleum Heat and Power Co., Inc. (“PH&P”) is a 100% owned subsidiary of Star. PH&P is the borrower and Star is the guarantor of the third amended and restated credit agreement’s five-year senior secured term loan and the $300 million ($450 million during the heating season of December through April of each year) revolving credit facility, both due July 30, 2020. (See Note 9—Long-Term Debt and Bank Facility Borrowings).

2) Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements include the accounts of Star Group, L.P. and its subsidiaries. All material intercompany items and transactions have been eliminated in consolidation.

The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair statement of financial condition and results for the interim periods. Due to the seasonal nature of the Company’s business, the results of operations and cash flows for the three month period ended December 31, 2017 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 and should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2017.

Comprehensive Income

Comprehensive income is comprised of Net income and Other comprehensive income. Other comprehensive income consists of the unrealized gain amortization on the Company’s pension plan obligation for its two frozen defined benefit pension plans, and the corresponding tax effect.

8


Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. At December 31, 2017, the $21.4 million of cash, cash equivalents, and restricted cash on the condensed consolidated statement of cash flows is composed of $21.1 million of cash and cash equivalents and $0.3 million of restricted cash. At September 30, 2017, the $52.7 million of cash, cash equivalents, and restricted cash on the condensed consolidated statements of cash flow is composed of $52.5 million of cash and cash equivalents and $0.3 million of restricted cash. Restricted cash represents deposits held by our captive insurance company that are required by state insurance regulations to remain in the captive insurance company as cash.

Captive Insurance Collateral

At December 31, 2017 captive insurance collateral is comprised of $45.1 million of Level 1 debt securities measured at fair value and $0.7 million of mutual funds measured at net asset value.  At September 30, 2017 the balance was comprised of $11.3 million of Level 1 debt securities measured at fair value and $0.5 million of mutual funds measured at net asset value.

The investments are held by our captive insurance company in an irrevocable trust as collateral for certain workers’ compensation, general and automobile liability claims.  The collateral is required by a third party insurance carrier that insures per claim amounts above a set deductible. Due to the expected timing of claim payments, the nature of the collateral agreement with the carrier, and our captive insurance company’s source of other operating cash, the collateral is not expected to be used to pay obligations within the next twelve months.  

At September 30, 2017 the investments were held for workers’ compensation, general and automobile liability claims incurred and expected to be incurred in fiscal 2017.  In the first quarter of fiscal 2018 we deposited $34.2 million of cash into the irrevocable trust to secure certain workers’ compensation, general and automobile liability claims incurred and expected to be incurred from fiscal 2004 to fiscal 2016 and fiscal 2018.

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 has weather hedge contracts for fiscal years 2017, 2018 and 2019.  Under these contracts, we are entitled to receive a payment if the total number of degree days within the hedge period is less than the ten year average. The “Payment Thresholds,” or strikes, are set at various levels. In addition, we will be obligated to make a payment capped at $5.0 million if degree days exceed the ten year average. The hedge period runs from November 1 through March 31, taken as a whole, for each respective fiscal year. For fiscal 2018 the maximum that the Company can receive is $17.5 million and the maximum that the Company would be obligated to pay is $5.0 million. For fiscal 2019 the maximum that the Company can receive is $12.5 million and the maximum that the Company would be obligated to pay is $5.0 million. In accordance with ASC 815-45-15, as of December 31, 2017, the Company recorded a charge of $3.1 million under this contract that increased delivery and branch expenses. No credit was recorded as of December 31, 2016.

New England Teamsters and Trucking Industry Pension Fund (“the NETTI Fund”) Liability

As of December 31, 2017, we had $0.2 million and $17.3 million balances included in the captions Accrued expenses and other current liabilities and Other long-term liabilities, respectively, on our condensed consolidated balance sheet representing the remaining balance of the NETTI withdrawal liability. Based on the borrowing rates currently available to the Company for long-term financing of a similar maturity, the fair value of the NETTI withdrawal liability as of December 31, 2017 was $22.3 million. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.

Recently Adopted Accounting Pronouncements

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. The update changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. The Company adopted the ASU effective December 31, 2017.  The adoption of ASU No. 2015-11 did not have an impact on the Company’s consolidated financial statements and related disclosures.

9


Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The FASB has also issued several updates to ASU 2014-09. This ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2019, with early adoption permitted beginning in the first quarter of fiscal 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is in the process of evaluating the effect that ASU 2014-09 will have on its revenue streams, consolidated financial statements and related disclosures. The Company has not yet selected a transition method, nor does it intend to early adopt.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The update requires all leases with a term greater than twelve months to be recognized on the balance sheet by calculating the discounted present value of such leases and accounting for them through a right-of-use asset and an offsetting lease liability, and the disclosure of key information pertaining to leasing arrangements. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2020, with early adoption permitted. The Company does not intend to early adopt. The Company is continuing to evaluate the effect that ASU No. 2016-02 could have on its consolidated financial statements and related disclosures, but has not yet selected a transition method. The new guidance will materially change how we account for operating leases for office space, trucks and other equipment. Upon adoption, we expect to recognize discounted right-of-use assets and offsetting lease liabilities related to our operating leases of office space, trucks and other equipment. As of December 31, 2017, the undiscounted future minimum lease payments through 2032 for such operating leases are approximately $131.1 million, but what amount of leasing activity is expected between December 31, 2017, and the date of adoption, is currently unknown. For this reason we are unable to estimate the discounted right-of-use assets and lease liabilities as of the date of adoption.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. The update broadens the information that an entity should consider in developing expected credit loss estimates, eliminates the probable initial recognition threshold, and allows for the immediate recognition of the full amount of expected credit losses. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2021, with early adoption permitted in the first quarter of fiscal 2020. The Company is evaluating the effect that ASU No. 2016-13 will have on its consolidated financial statements and related disclosures, but has not yet determined the timing of adoption.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flow (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update addresses the issues of debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2019, with early adoption permitted. The Company has not determined the timing of adoption, but does not expect ASU 2016-15 to have a material impact on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the definition of a business. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2019, with early adoption permitted. The Company has not determined the timing of adoption, but does not expect ASU 2017-01 to have a material impact on its consolidated financial statements and related disclosures.

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. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2021, with early adoption permitted. The Company has not determined the timing of adoption, but does not expect ASU 2017-04 to have a material impact on its consolidated financial statements and related disclosures.

10


3) Common Unit Repurchase and Retirement

In July 2012, the Board authorized the repurchase of up to 3.0 million of the Company’s Common Units (“Plan III”). In July 2013, the Board authorized the repurchase of an additional 1.9 million Common Units under Plan III. The authorized Common Unit repurchases may be made from time to time in the open market, in privately negotiated transactions or in such other manner deemed appropriate by management. There is no guarantee of the exact number of units that will be purchased under the program and the Company may discontinue purchases at any time. The program does not have a time limit. The Board may also approve additional purchases of units from time to time in private transactions. The Company’s repurchase activities take into account SEC safe harbor rules and guidance for issuer repurchases. All of the Common Units purchased in the repurchase program will be retired.

Under the Company’s third amended and restated credit agreement dated July 30, 2015, in order to repurchase Common Units we must maintain Availability (as defined in the amended and restated credit agreement) of $45 million, 15.0% of the facility size of $300 million (assuming the non-seasonal aggregate commitment is in effect) on a historical pro forma and forward-looking basis, and a fixed charge coverage ratio of not less than 1.15 measured as of the date of repurchase. The Company was in compliance with this covenant as of December 31, 2017.

The following table shows repurchases under Plan III.

 

(in thousands, except per unit amounts)

Period

 

Total Number of

Units Purchased

(a)

 

 

Average Price

Paid per Unit

(b)

 

 

Maximum Number

of Units that May

Yet Be Purchased

 

Plan III - Number of units authorized

 

 

 

 

 

 

 

 

 

 

4,894

 

Private transaction - Number of units authorized

 

 

 

 

 

 

 

 

 

 

2,450

 

 

 

 

 

 

 

 

 

 

 

 

7,344

 

Plan III - Fiscal years 2012 to 2017 total (c)

 

 

5,137

 

 

$

5.78

 

 

 

2,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plan III - First quarter fiscal year 2018 total

 

 

-

 

 

$

-

 

 

 

2,207

 

 

(a)

Units were repurchased as part of a publicly announced program, except as noted in a private transaction.

(b)

Amounts include repurchase costs.

(c)

Includes 2.45 million common units acquired in a private transaction.

4) Derivatives and Hedging—Disclosures and Fair Value Measurements

FASB ASC 815-10-05 Derivatives and Hedging, established accounting and reporting standards requiring that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities, along with qualitative disclosures regarding the derivative activity. The Company uses derivative instruments such as futures, options and swap agreements in order to mitigate exposure to market risk associated with the purchase of home heating oil for price-protected customers, physical inventory on hand, inventory in transit, priced purchase commitments and internal fuel usage. The Company has elected not to designate its derivative instruments as hedging derivatives, but rather as economic hedges whose change in fair value is recognized in its statement of operations in the line item (increase) decrease in the fair value of derivative instruments. Depending on the risk being economically hedged, realized gains and losses are recorded in cost of product, cost of installations and services, or delivery and branch expenses.

As of December 31, 2017, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers, the Company held the following derivative instruments that settle in future months to match anticipated sales: 17.9 million gallons of swap contracts, 7.3 million gallons of call options, 8.7 million gallons of put options, and 83.9 million net gallons of synthetic call options. To hedge the inter-month differentials for its price-protected customers, its physical inventory on hand and inventory in transit, the Company, as of December 31, 2017, had 27.8 million gallons of long future contracts, and 55.1 million gallons of short future contracts that settle in future months.  To hedge its internal fuel usage and other related activities for fiscal 2018, the Company, as of December 31, 2017, had 2.3 million gallons of swap contracts that settle in future months.

11


As of December 31, 2016, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers, the Company held the following derivative instruments that settle in future months to match anticipated sales: 14.0 million gallons of swap contracts, 7.6 million gallons of call options, 9.0 million gallons of put options, and 89.2 million net gallons of synthetic call options. To hedge the inter-month differentials for its price-protected customers, its physical inventory on hand and inventory in transit, the Company, as of December 31, 2016, had 1.0 million gallons of long swap contracts, 23.5 million gallons of long future contracts, and 44.7 million gallons of short future contracts that settle in future months. In addition to the previously described hedging instruments, the Company as of December 31, 2016, had 5.1 million gallons of spread contracts (simultaneous long and short positions) to lock-in the differential between high sulfur home heating oil and ultra low sulfur diesel. To hedge its internal fuel usage and other related activities for fiscal 2017, the Company, as of December 31, 2016, had 4.2 million gallons of swap contracts that settle in future months.

The Company’s derivative instruments are with the following counterparties: Bank of America, N.A., Bank of Montreal, Cargill, Inc., Citibank, N.A., JPMorgan Chase Bank, N.A., Key Bank, N.A., Munich Re Trading LLC, Regions Financial Corporation, Societe Generale, and Wells Fargo Bank, N.A. The Company assesses counterparty credit risk and considers it to be low. We maintain master netting arrangements that allow for the non-conditional offsetting of amounts receivable and payable with counterparties to help manage our risks and record derivative positions on a net basis. The Company generally does not receive cash collateral from its counterparties and does not restrict the use of cash collateral it maintains at counterparties. At December 31, 2017, the aggregate cash posted as collateral in the normal course of business at counterparties was $1.5 million and recorded in prepaid expense and other current assets. Positions with counterparties who are also parties to our credit agreement are collateralized under that facility. As of December 31, 2017, no hedge positions and payable amounts were secured under the credit facility.

FASB ASC 820-10 Fair Value Measurements and Disclosures, established a three-tier fair value hierarchy, which classified the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company’s Level 1 derivative assets and liabilities represent the fair value of commodity contracts used in its hedging activities that are identical and traded in active markets. The Company’s Level 2 derivative assets and liabilities represent the fair value of commodity 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.

12


The Company had no assets or liabilities that are measured at fair value on a nonrecurring basis subsequent to their initial recognition. The Company’s financial assets and liabilities measured at fair value on a recurring basis are listed on the following table.

 

(In thousands)

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using:

 

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 December 31, 2017

 

Commodity contracts

 

Fair asset and fair liability value

   of derivative instruments

 

$

19,220

 

 

$

-

 

 

$

19,220

 

Commodity contracts

 

Long-term derivative assets

   included in the deferred

   charges and other assets, net

   balance

 

 

755

 

 

$

-

 

 

 

755

 

Commodity contract assets at December 31, 2017

 

$

19,975

 

 

$

-

 

 

$

19,975

 

Liability Derivatives at December 31, 2017

 

Commodity contracts

 

Fair liability and fair asset

   value of derivative instruments

 

$

-

 

 

$

-

 

 

$

-

 

Commodity contracts

 

Long-term derivative liabilities

   included in the deferred

   charges and other assets, net

   balance

 

 

(6

)

 

 

 

 

 

 

(6

)

Commodity contract liabilities at December 31, 2017

 

$

(6

)

 

$

-

 

 

$

(6

)

Asset Derivatives at September 30, 2017

 

Commodity contracts

 

Fair asset and fair liability value

   of derivative instruments

 

$

7,729

 

 

$

-

 

 

$

7,729

 

Commodity contracts

 

Long-term derivative assets

   included in the deferred

   charges and other assets, net

   balance

 

 

996

 

 

 

-

 

 

 

996

 

Commodity contract assets at September 30, 2017

 

$

8,725

 

 

$

-

 

 

$

8,725

 

Liability Derivatives at September 30, 2017

 

Commodity contracts

 

Fair liability and fair asset value

   of derivative instruments

 

$

(2,086

)

 

$

-

 

 

$

(2,086

)

Commodity contracts

 

Long-term derivative liabilities

   included in the deferred

   charges and other assets, net

   and other long-term liabilities

   balances

 

 

(731

)

 

 

-

 

 

 

(731

)

Commodity contract liabilities at September 30, 2017

 

$

(2,817

)

 

 

 

 

 

$

(2,817

)

 

13


The Company’s 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

 

$

19,220

 

 

$

-

 

 

$

19,220

 

 

$

-

 

 

 

 

 

 

$

19,220

 

Long-term derivative assets included in

   deferred charges and other assets, net

 

 

755

 

 

 

(6

)

 

 

749

 

 

 

-

 

 

 

-

 

 

 

749

 

Fair liability value of derivative instruments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Long-term derivative liabilities included in

   other long-term liabilities, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total at December 31, 2017

 

$

19,975

 

 

$

(6

)

 

$

19,969

 

 

$

-

 

 

$

-

 

 

$

19,969

 

Fair asset value of derivative instruments

 

$

6,023

 

 

$

(91

)

 

$

5,932

 

 

$

-

 

 

$

-

 

 

$

5,932

 

Long-term derivative assets included in

   other long-term assets, net

 

 

996

 

 

 

(730

)

 

 

266

 

 

 

-

 

 

 

-

 

 

 

266

 

Fair liability value of derivative instruments

 

 

1,706

 

 

 

(1,995

)

 

 

(289

)

 

 

-

 

 

 

-

 

 

 

(289

)

Long-term derivative liabilities included in

   other long-term liabilities, net

 

 

-

 

 

 

(1

)

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

(1

)

Total at September 30, 2017

 

$

8,725

 

 

$

(2,817

)

 

$

5,908

 

 

$

-

 

 

$

-

 

 

$

5,908

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

The Effect of Derivative Instruments on the Statement of Operations

 

 

 

 

 

Amount of (Gain) or Loss Recognized

 

Derivatives Not Designated as Hedging

Instruments Under FASB ASC 815-10

 

Location of (Gain) or Loss

Recognized in Income on Derivative

 

Three Months

Ended

December 31,

2017

 

 

Three Months

Ended

December 31,

2016

 

Commodity contracts

 

Cost of product (a)

 

$

184

 

 

$

3,381

 

Commodity contracts

 

Cost of installations and service (a)

 

$

(582

)

 

$

(94

)

Commodity contracts

 

Delivery and branch expenses (a)

 

$

(1,229

)

 

$

(117

)

Commodity contracts

 

(Increase) / decrease in the fair value of derivative instruments (b)

 

$

(11,400

)

 

$

(8,551

)

 

(a)

Represents realized closed positions and includes the cost of options as they expire.

(b)

Represents the change in value of unrealized open positions and expired options.

5) Inventories

The Company’s product inventories are stated at the lower of cost and net realizable value computed on the weighted average cost method. All other inventories, representing parts and equipment are stated at the lower of cost and net realizable value using the FIFO method. The components of inventory were as follows (in thousands):

 

 

 

December 31,

2017

 

 

September 30,

2017

 

Product

 

$

49,842

 

 

$

37,941

 

Parts and equipment

 

 

21,662

 

 

 

21,655

 

Total inventory

 

$

71,504

 

 

$

59,596

 

 

14


6) 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):

 

 

 

December 31,

2017

 

 

September 30,

2017

 

Property and equipment

 

$

203,674

 

 

$

201,312

 

Less: accumulated depreciation

 

 

124,136

 

 

 

121,639

 

Property and equipment, net

 

$

79,538

 

 

$

79,673

 

 

7) Business Combinations

During fiscal 2018, the Company acquired two heating oil dealers for an aggregate purchase price of approximately $0.3 million.  The acquired companies’ operating results are included in the Company’s consolidated financial statements starting on their respective acquisition dates, and are not material to the Company’s financial condition, results of operations, or cash flows.

8) Goodwill and Intangibles, net

Goodwill

A summary of changes in the Company’s goodwill is as follows (in thousands):

 

Balance as of September 30, 2017

 

$

225,915

 

Fiscal year 2018 business combinations

 

 

63

 

Balance as of December 31, 2017

 

$

225,978

 

 

Intangibles, net

The gross carrying amount and accumulated amortization of intangible assets subject to amortization are as follows (in thousands):

 

 

 

December 31, 2017

 

 

September 30, 2017

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accum.

 

 

 

 

 

 

Carrying

 

 

Accum.

 

 

 

 

 

 

 

Amount

 

 

Amortization

 

 

Net

 

 

Amount

 

 

Amortization

 

 

Net

 

Customer lists

 

$

346,995

 

 

$

268,362

 

 

$

78,633

 

 

$

346,784

 

 

$

264,632

 

 

$

82,152

 

Trade names and other intangibles

 

 

32,047

 

 

 

10,037

 

 

 

22,010

 

 

 

32,047

 

 

 

8,981

 

 

 

23,066

 

Total

 

$

379,042

 

 

$

278,399

 

 

$

100,643

 

 

$

378,831

 

 

$

273,613

 

 

$

105,218

 

 

Amortization expense for intangible assets was $4.7 million for the three months ended December 31, 2017, compared to $3.9 million for the three months ended December 31, 2016.

9) Long-Term Debt and Bank Facility Borrowings

The Company’s debt is as follows (in thousands):

 

 

 

December 31,

 

 

September 30,

 

 

 

2017

 

 

2017

 

 

 

Carrying

Amount

 

 

Fair Value (a)

 

 

Carrying

Amount

 

 

Fair Value (a)

 

Revolving Credit Facility Borrowings

 

$

79,149

 

 

$

79,149

 

 

$

-

 

 

$

-

 

Senior Secured Term Loan (b)

 

 

73,278

 

 

 

73,800

 

 

 

75,717

 

 

 

76,300

 

Total debt

 

$

152,427

 

 

$

152,949

 

 

$

75,717

 

 

$

76,300

 

Total long-term portion of debt (b)

 

$

63,278

 

 

$

63,800

 

 

$

65,717

 

 

$

66,300

 

 

(a)

The face amount of the Company’s variable rate long-term debt approximates fair value.

(b)

Carrying amounts are net of unamortized debt issuance costs of $0.5 million as December 31, 2017 and $0.6 million as of September 30, 2017.

15


On July 30, 2015, the Company entered into a third amended and restated asset-based credit agreement with a bank syndicate comprised of thirteen participants, which enables the Company to borrow up to $300 million ($450 million during the heating season of December through April of each year) on a revolving credit facility for working capital purposes (subject to certain borrowing base limitations and coverage ratios), provides for a $100 million five-year senior secured term loan (the “Term Loan”), allows for the issuance of up to $100 million in letters of credit, and has a maturity date of July 30, 2020.

The Company can increase the revolving credit facility size by $100 million without the consent of the bank group. However, the bank group is not obligated to fund the $100 million increase. If the bank group elects not to fund the increase, the Company can add additional lenders to the group, with the consent of the Agent (as defined in the credit agreement), which shall not be unreasonably withheld. Obligations under the third amended and restated credit facility are guaranteed by the Company and its subsidiaries and are secured by liens on substantially all of the Company’s assets including accounts receivable, inventory, general intangibles, real property, fixtures and equipment.

All amounts outstanding under the third amended and restated revolving credit facility become due and payable on the facility termination date of July 30, 2020. The Term Loan is repayable in quarterly payments of $2.5 million, plus an annual payment equal to 25% of the annual Excess Cash Flow as defined in the agreement (an amount not to exceed $15 million annually), less certain voluntary prepayments made during the year, with final payment at maturity.

The interest rate on the third amended and restated revolving credit facility and the Term Loan is based on a margin over LIBOR or a base rate. At December 31, 2017, the effective interest rate on the Term Loan was approximately 4.3% and the effective interest rate on revolving credit facility borrowings was approximately 4.5%.

The Commitment Fee on the unused portion of the revolving credit facility is 0.30% from December through April, and 0.20% from May through November.

The third amended and restated credit agreement requires the Company to meet certain financial covenants, including a fixed charge coverage ratio (as defined in the credit agreement) of not less than 1.1 as long as the Term Loan is outstanding or revolving credit facility availability is less than 12.5% of the facility size. In addition, as long as the Term Loan is outstanding, a senior secured leverage ratio at any time cannot be more than 3.0 as calculated during the quarters ending June or September, and at any time no more than 4.5 as calculated during the quarters ending December or March.

Certain restrictions are also imposed by the 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, make investments, grant liens, sell assets, make acquisitions and engage in certain other activities.

At December 31, 2017, $73.8 million of the Term Loan was outstanding, $79.1 million was outstanding under the revolving credit facility, no hedge positions were secured under the credit agreement, and $7.3 million of letters of credit were issued and outstanding. At September 30, 2017, $76.3 million of the Term Loan was outstanding, no amount was outstanding under the revolving credit facility, $0.1 million of hedge positions were secured under the credit agreement, and $48 million of letters of credit were issued and outstanding.

At December 31, 2017, availability was $185.8 million, and the Company was in compliance with the fixed charge coverage ratio and the senior secured leverage ratio. At September 30, 2017, availability was $166.1 million, and the Company was in compliance with the fixed charge coverage ratio and the senior secured leverage ratio.

 

10) Income Taxes

At a special meeting held October 25, 2017, unitholders voted in favor of proposals to have the Company be treated as a corporation effective November 1, 2017,  instead of a partnership, for federal income tax purposes (commonly referred to as a “check-the-box” election) along with amendments to our Partnership Agreement to effect such changes in income tax classification.  For corporate subsidiaries of the Company, a consolidated Federal income tax return is filed. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recognized if, based on the weight of available evidence including historical tax losses, it is more likely than not that some or all of deferred tax assets will not be realized.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted into law.  The Tax Reform Act is a complicated piece of legislation that, among other provisions, contains several key provisions which impact the Company, especially the reduction of the Federal corporate income tax rate from 35% to 21% effective January 1, 2018.

16


Given the significance and complexity of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.

As of December 31, 2017, the income tax benefit is based, in part, on a reasonable estimate of deferred tax balances as of the enactment of the Tax Reform Act.  The estimate of such deferred tax balances is provisional.  The provisional re-measurement of the deferred tax assets and liabilities resulted in an $11.5 million discrete tax benefit recorded in the quarter ended December 31, 2017.  The provisional re-measurement amount is anticipated to change as data becomes available allowing more accurate scheduling of certain deferred tax assets and liabilities.  We anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending September 30, 2018.

The effective tax rate for the quarter ended December 31, 2017 is negative 5.3%.  The income tax provision for the quarter reflects the application of blended statutory rates for calendar years 2017 and 2018 to the quarter’s results, as well as recognition of the $11.5 million provisional tax benefit due to reduction in the Federal corporate tax rate.  As a result of the tax reform, the Company’s net deferred tax liability will be realized at a lower statutory tax rate than when originally recorded, resulting in the aforementioned tax benefit.  Excluding the impact of this net deferred tax liability related tax benefit our effective income tax rate decreased from 41.3% at December 31, 2016 to 34.7% at December 31, 2017 primarily due to the lower enacted Federal statutory tax rate.

The accompanying financial statements are reported on a fiscal year, however, the Company and its corporate subsidiaries file Federal and State income tax returns on a calendar year.

The current and deferred income tax (benefit) and expenses for the three months ended December 31, 2017, and 2016 are as follows:

 

 

 

Three Months Ended

 

 

 

December 31,

 

(in thousands)

 

2017

 

 

2016

 

Income before income taxes

 

$

28,670

 

 

$

31,138

 

Current tax expense

 

 

1,228

 

 

 

8,922

 

 

 

 

 

 

 

 

 

 

   Deferred tax expense

 

 

8,712

 

 

 

3,941

 

   Deferred tax  benefit - impact of tax reform

 

 

(11,452

)

 

 

-

 

Total deferred tax (benefit) expense

 

 

(2,740

)

 

 

3,941

 

Total tax (benefit) expense

 

$

(1,512

)

 

$

12,863

 

 

The provision for income taxes differs from income taxes computed at the Federal statutory rate as a result of the following (in thousands):

 

 

 

Three Months Ended

 

 

 

December 31,

 

(in thousands)

 

2017

 

 

2016

 

Income before income taxes

 

$

28,670

 

 

$

31,138

 

 

 

 

 

 

 

 

 

 

Tax at Federal statutory rate

 

 

7,024

 

 

 

10,898

 

Impact of Partnership loss not subject to federal income taxes

 

 

51

 

 

 

146

 

State taxes net of federal benefit

 

 

2,522

 

 

 

1,819

 

Deferred tax  benefit - impact of tax reform

 

 

(11,452

)

 

 

-

 

Other

 

 

343

 

 

 

-

 

Total tax (benefit) expense

 

$

(1,512

)

 

$

12,863

 

 

At December 31, 2017, we did not have unrecognized income tax benefits.

Our continuing practice is to recognize interest and penalties related to income tax matters as a component of income tax expense. We file U.S. Federal income tax returns and various state and local returns. A number of years may elapse before an uncertain tax position is audited and finally resolved. For our Federal income tax returns we have four tax years subject to examination. In our major state tax jurisdictions of New York, Connecticut, Pennsylvania we have four years that are subject to

17


examination. In the state tax jurisdictions of New Jersey we have five tax years that are subject to examination. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, based on our assessment of many factors including past experience and interpretation of tax law, we believe that our provision for income taxes reflect the most probable outcome. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.

11) Supplemental Disclosure of Cash Flow Information

 

 

 

Three Months Ended

 

 

 

December 31,

 

(in thousands)