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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, 2020

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 Registrant as Specified in its Charter)

 

 

Delaware

06-1437793

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

9 West Broad Street

Stamford, Connecticut

06902

(Address of principal executive office)

 

 

Registrant’s telephone number, including area code: (203) 328-7310

 

N/A

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Unit

 

SGU

 

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically 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).    Yes      No  

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non- accelerated filer

Smaller reporting company

 

 

 

Emerging growth company

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

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

At January 31, 2021, the registrant had 40,307,602 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, 2020 (unaudited) and September 30, 2020

 

3

Condensed Consolidated Statements of Operations (unaudited) for the three months ended December 31, 2020 and December 31, 2019

 

4

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months ended December 31, 2020 and December 31, 2019

 

5

Condensed Consolidated Statement of Partners’ Capital (unaudited) for the three months ended December 31, 2020 and December 31, 2019

 

6

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended December 31, 2020 and December 31, 2019

 

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:

 

33

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,

 

 

 

2020

 

 

2020

 

(in thousands)

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,847

 

 

$

56,911

 

Receivables, net of allowance of $5,185 and $6,121, respectively

 

 

147,011

 

 

 

83,594

 

Inventories

 

 

56,902

 

 

 

50,256

 

Fair asset value of derivative instruments

 

 

5,197

 

 

 

 

Prepaid expenses and other current assets

 

 

38,478

 

 

 

29,554

 

Assets held for sale

 

 

 

 

 

6,030

 

Total current assets

 

 

266,435

 

 

 

226,345

 

Property and equipment, net

 

 

98,332

 

 

 

93,495

 

Operating lease right-of-use assets

 

 

100,222

 

 

 

99,776

 

Goodwill

 

 

255,425

 

 

 

240,327

 

Intangibles, net

 

 

103,440

 

 

 

90,293

 

Restricted cash

 

 

250

 

 

 

250

 

Captive insurance collateral

 

 

69,988

 

 

 

69,787

 

Deferred charges and other assets, net

 

 

19,322

 

 

 

18,343

 

Total assets

 

$

913,414

 

 

$

838,616

 

LIABILITIES AND PARTNERS’ CAPITAL

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

41,924

 

 

$

30,827

 

Liabilities held for sale

 

 

 

 

 

1,265

 

Revolving credit facility borrowings

 

 

59,341

 

 

 

 

Fair liability value of derivative instruments

 

 

 

 

 

11,437

 

Current maturities of long-term debt

 

 

13,000

 

 

 

13,000

 

Current portion of operating lease liabilities

 

 

19,200

 

 

 

19,139

 

Accrued expenses and other current liabilities

 

 

133,713

 

 

 

127,286

 

Unearned service contract revenue

 

 

68,063

 

 

 

58,430

 

Customer credit balances

 

 

74,626

 

 

 

83,471

 

Total current liabilities

 

 

409,867

 

 

 

344,855

 

Long-term debt

 

 

106,606

 

 

 

109,805

 

Long-term operating lease liabilities

 

 

86,419

 

 

 

85,908

 

Deferred tax liabilities, net

 

 

20,908

 

 

 

17,227

 

Other long-term liabilities

 

 

26,998

 

 

 

25,001

 

Partners’ capital

 

 

 

 

 

 

 

 

Common unitholders

 

 

279,873

 

 

 

273,283

 

General partner

 

 

(2,447

)

 

 

(2,506

)

Accumulated other comprehensive loss, net of taxes

 

 

(14,810

)

 

 

(14,957

)

Total partners’ capital

 

 

262,616

 

 

 

255,820

 

Total liabilities and partners’ capital

 

$

913,414

 

 

$

838,616

 

 

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)

 

2020

 

 

2019

 

Sales:

 

 

 

 

 

 

 

 

Product

 

$

300,332

 

 

$

432,688

 

Installations and services

 

 

72,988

 

 

 

76,257

 

Total sales

 

 

373,320

 

 

 

508,945

 

Cost and expenses:

 

 

 

 

 

 

 

 

Cost of product

 

 

172,147

 

 

 

287,673

 

Cost of installations and services

 

 

69,303

 

 

 

73,669

 

(Increase) decrease in the fair value of derivative instruments

 

 

(17,395

)

 

 

(6,417

)

Delivery and branch expenses

 

 

80,687

 

 

 

96,726

 

Depreciation and amortization expenses

 

 

7,957

 

 

 

9,050

 

General and administrative expenses

 

 

6,241

 

 

 

6,506

 

Finance charge income

 

 

(406

)

 

 

(713

)

Operating income

 

 

54,786

 

 

 

42,451

 

Interest expense, net

 

 

(1,851

)

 

 

(2,679

)

Amortization of debt issuance costs

 

 

(247

)

 

 

(235

)

Income before income taxes

 

 

52,688

 

 

 

39,537

 

Income tax expense

 

 

14,828

 

 

 

11,782

 

Net income

 

$

37,860

 

 

$

27,755

 

General Partner’s interest in net income

 

 

296

 

 

 

192

 

Limited Partners’ interest in net income

 

$

37,564

 

 

$

27,563

 

 

 

 

 

 

 

 

 

 

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

 

$

0.74

 

 

$

0.49

 

Weighted average number of Limited Partner units outstanding:

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

42,246

 

 

 

47,266

 

 

(1)

See Note 16 - Earnings Per Limited Partner Unit.

See accompanying notes to condensed consolidated financial statements.

 

4


STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

 

 

Three Months

Ended December 31,

 

(in thousands - unaudited)

 

2020

 

 

2019

 

Net income

 

$

37,860

 

 

$

27,755

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gain on pension plan obligation

 

 

235

 

 

 

455

 

Tax effect of unrealized gain on pension plan obligation

 

 

(64

)

 

 

(125

)

Unrealized loss on captive insurance collateral

 

 

(340

)

 

 

(64

)

Tax effect of unrealized loss on captive insurance collateral

 

 

72

 

 

 

8

 

Unrealized gain on interest rate hedges

 

 

332

 

 

 

334

 

Tax effect of unrealized gain on interest rate hedges

 

 

(88

)

 

 

(86

)

Total other comprehensive income

 

 

147

 

 

 

522

 

Total comprehensive income

 

$

38,007

 

 

$

28,277

 

See accompanying notes to condensed consolidated financial statements.

 

5


STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

 

 

 

Three Months Ended December 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, 2020

 

 

43,328

 

 

 

326

 

 

$

273,283

 

 

$

(2,506

)

 

$

(14,957

)

 

$

255,820

 

Net income

 

 

 

 

 

 

 

 

37,564

 

 

 

296

 

 

 

 

 

 

37,860

 

Unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

235

 

 

 

235

 

Tax effect of unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(64

)

 

 

(64

)

Unrealized loss on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(340

)

 

 

(340

)

Tax effect of unrealized loss on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72

 

 

 

72

 

Unrealized gain on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

332

 

 

 

332

 

Tax effect of unrealized gain on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(88

)

 

 

(88

)

Distributions

 

 

 

 

 

 

 

 

(5,702

)

 

 

(237

)

 

 

 

 

 

(5,939

)

Retirement of units

 

 

(2,591

)

 

 

 

 

 

(25,272

)

 

 

 

 

 

 

 

 

(25,272

)

Balance as of December 31, 2020 (unaudited)

 

 

40,737

 

 

 

326

 

 

$

279,873

 

 

$

(2,447

)

 

$

(14,810

)

 

$

262,616

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2019

 

 

 

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

 

 

47,685

 

 

 

326

 

 

$

279,709

 

 

$

(1,968

)

 

$

(16,901

)

 

$

260,840

 

Net income

 

 

 

 

 

 

 

 

27,563

 

 

 

192

 

 

 

 

 

 

27,755

 

Unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

455

 

 

 

455

 

Tax effect of unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(125

)

 

 

(125

)

Unrealized loss on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(64

)

 

 

(64

)

Tax effect of unrealized loss on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

8

 

Unrealized gain on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

334

 

 

 

334

 

Tax effect of unrealized gain on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(86

)

 

 

(86

)

Distributions

 

 

 

 

 

 

 

 

(5,940

)

 

 

(215

)

 

 

 

 

 

(6,155

)

Retirement of units

 

 

(1,281

)

 

 

 

 

 

(12,064

)

 

 

 

 

 

 

 

 

(12,064

)

Balance as of December 31, 2019 (unaudited)

 

 

46,404

 

 

 

326

 

 

$

289,268

 

 

$

(1,991

)

 

$

(16,379

)

 

$

270,898

 

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)

 

2020

 

 

2019

 

Cash flows provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

37,860

 

 

$

27,755

 

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

   operating activities:

 

 

 

 

 

 

 

 

(Increase) decrease in fair value of derivative instruments

 

 

(17,395

)

 

 

(6,417

)

Depreciation and amortization

 

 

8,204

 

 

 

9,285

 

(Recovery) provision for losses on accounts receivable

 

 

(476

)

 

 

1,010

 

Change in deferred taxes

 

 

3,601

 

 

 

1,336

 

Change in weather hedge contracts

 

 

(3,955

)

 

 

3,045

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Increase in receivables

 

 

(62,989

)

 

 

(85,745

)

Increase in inventories

 

 

(7,177

)

 

 

(15,427

)

Increase in other assets

 

 

(5,651

)

 

 

(2,394

)

Increase in accounts payable

 

 

12,325

 

 

 

14,375

 

Decrease in customer credit balances

 

 

(8,987

)

 

 

(15,898

)

Increase in other current and long-term liabilities

 

 

17,639

 

 

 

17,484

 

Net cash used in operating activities

 

 

(27,001

)

 

 

(51,591

)

Cash flows provided by (used in) investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(4,680

)

 

 

(3,024

)

Proceeds from sales of fixed assets

 

 

60

 

 

 

63

 

Proceeds from sale of propane assets

 

 

6,093

 

 

 

 

Purchase of investments

 

 

(303

)

 

 

(4,206

)

Acquisitions

 

 

(37,073

)

 

 

(496

)

Net cash used in investing activities

 

 

(35,903

)

 

 

(7,663

)

Cash flows provided by (used in) financing activities:

 

 

 

 

 

 

 

 

Revolving credit facility borrowings

 

 

59,341

 

 

 

90,202

 

Revolving credit facility repayments

 

 

 

 

 

(39,014

)

Loan issuance

 

 

 

 

 

130,000

 

Term loan repayments

 

 

(3,250

)

 

 

(92,500

)

Distributions

 

 

(5,939

)

 

 

(6,155

)

Unit repurchases

 

 

(25,272

)

 

 

(12,064

)

Customer retainage payments

 

 

(29

)

 

 

(299

)

Payments of debt issue costs

 

 

(11

)

 

 

(1,273

)

Net cash provided by financing activities

 

 

24,840

 

 

 

68,897

 

Net (decrease) increase in cash, cash equivalents, and restricted cash

 

 

(38,064

)

 

 

9,643

 

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

 

 

57,161

 

 

 

5,149

 

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

 

$

19,097

 

 

$

14,792

 

 

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 and air conditioning products and services to residential and commercial home heating oil and propane customers. The Company has one reportable segment for accounting purposes.  We also sell diesel fuel, gasoline and home heating oil on a delivery only basis, and in certain of our marketing areas, we provide plumbing services primarily to our home heating oil and propane customer base. 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, 2020, had outstanding 40.7 million Common Units (NYSE: “SGU”), representing a 99.2 % limited partner interest in Star, and 0.3 million general partner units, representing a 0.8% 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”).  Although Star is a partnership, it is taxed as a corporation and its distributions to unitholders are treated as taxable dividends.

 

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 and Mid-Atlantic U.S. region retail distributor of home heating oil and propane that at December 31, 2020 served approximately 434,800 full service residential and commercial home heating oil and propane customers and 66,800 customers on a delivery only basis. We also sell gasoline and diesel fuel to approximately 26,400 customers. We install, maintain, and repair heating and air conditioning equipment and to a lesser extent provide these services outside our heating oil and propane customer base including approximately 18,200 service contracts for natural gas and other heating systems.

 

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 fifth amended and restated credit agreement’s $130 million 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 December 4, 2024. (See Note 11—Long-Term Debt and Bank Facility Borrowings)

2) Summary of Significant Accounting Policies

 

Basis of Presentation

The Consolidated Financial Statements include the accounts of Star 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, 2020 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.

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, 2020, the $19.1 million of cash, cash equivalents, and restricted cash on the Condensed Consolidated Statements of Cash Flows is composed of $18.8 million of cash and cash equivalents and $0.3 million of restricted cash. At September 30, 2020, the $57.2 million of cash, cash equivalents, and restricted cash on the Condensed Consolidated Statements of Cash Flows is composed of $56.9 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.

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 (see Note 7 to the consolidated financial statements):

 

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, 2021 and 2022.  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 “Payment Thresholds,” or strikes, are set at various levels and for fiscal 2021 the maximum that the Company can receive is $12.5 million. In addition, for fiscal 2021 we will be obligated to make a payment capped at $5.0 million if degree days exceed the Payment Threshold. The hedge period runs from November 1 through March 31, taken as a whole, for each respective fiscal year.  For fiscal 2022 the maximum that the Company can receive is $7.5 million and we do not have a potential obligation to pay. For the first quarter of fiscal 2021 we recorded a $4.0 million benefit and for the first quarter of fiscal 2020 we recorded a $3.0 million charge.

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

As of December 31, 2020 and September 30, 2020, we had $0.2 million and $16.7 million balances included in the captions “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, on our Condensed Consolidated

9


Balance Sheet representing the remaining balance of the NETTI Fund 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 Fund withdrawal liability as of December 31, 2020 and September 30, 2020 was $28.1 million and $29.0 million, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.

Recently Adopted Accounting Pronouncements

In 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 months ended December 31, 2020 and December 31, 2019:

 

Three Months

Ended December 31,

 

(in thousands)

2020

 

 

2019

 

Petroleum Products:

 

 

 

 

 

 

 

Home heating oil and propane

$

240,812

 

 

$

343,346

 

Other petroleum products

 

59,520

 

 

 

89,342

 

   Total petroleum products

 

300,332

 

 

 

432,688

 

Installations and Services:

 

 

 

 

 

 

 

Equipment installations

 

30,060

 

 

 

30,565

 

Equipment maintenance service contracts

 

26,868

 

 

 

27,908

 

Billable call services

 

16,060

 

 

 

17,784

 

   Total installations and services

 

72,988

 

 

 

76,257

 

   Total Sales

$

373,320

 

 

$

508,945

 

 

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

10


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 five years.  Deferred contract costs are classified as current or non-current within “Prepaid expenses and other current assets” and “Deferred charges and other assets, net,” respectively.  At December 31, 2020 the amount of deferred contract costs included in “Prepaid expenses and other current assets” and “Deferred charges and other assets, net” was $3.5 million and $6.3 million, respectively.  At September 30, 2020 the amount of deferred contract costs included in “Prepaid expenses and other current assets” and “Deferred charges and other assets, net” was $3.4 million and $5.9 million, respectively.  During the three months ended December 31, 2020 and 2019 we recognized expense of $1.0 million each period associated with the amortization of deferred contract costs within “Delivery and branch expenses” in the Condensed Consolidated Statement of Operations. 

 

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 one year or less.  As of December 31, 2020 and September 30, 2020 the Company had contract liabilities of $139.9 million and $139.6 million, respectively.  During the three months ended December 31, 2020 the Company recognized $70.2 million of revenue that was included in the September 30, 2020 contract liability balance.  During the three months ended December 31, 2019 the Company recognized $71.5 million of revenue that was included in the September 30, 2019 contract liability balance.

 

Receivables and Allowance for Doubtful Accounts

Accounts receivables from customers are recorded at the invoiced amounts. Finance charges may be applied to 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

$

6,121

 

Current period provision

 

(476

)

Write-offs, net and other

 

(460

)

Balance at December 31, 2020

$

5,185