!8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive office) |
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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:
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Title of each class |
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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.
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Large accelerated filer |
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☒ |
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Non- accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 January 31, 2022, the registrant had
STAR GROUP, L.P. AND SUBSIDIARIES
INDEX TO FORM 10-Q
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Page |
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Part I Financial Information |
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3 |
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Condensed Consolidated Balance Sheets as of December 31, 2021 (unaudited) and September 30, 2021 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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8-19 |
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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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20-32 |
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Item 3 - Quantitative and Qualitative Disclosures About Market Risk |
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33 |
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33 |
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Part II Other Information: |
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34 |
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34 |
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34 |
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Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds |
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34 |
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35 |
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36 |
2
Part I. FINANCIAL INFORMATION
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Item 1. |
Condensed Consolidated Financial Statements |
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31, |
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September 30, |
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2021 |
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2021 |
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(in thousands) |
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(unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables, net of allowance of $ |
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Inventories |
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Fair asset value of derivative instruments |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Goodwill |
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Intangibles, net |
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Restricted cash |
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Captive insurance collateral |
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Deferred charges and other assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES AND PARTNERS’ CAPITAL |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Revolving credit facility borrowings |
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Current maturities of long-term debt |
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Current portion of operating lease liabilities |
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Accrued expenses and other current liabilities |
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Unearned service contract revenue |
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Customer credit balances |
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Total current liabilities |
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Long-term debt |
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Long-term operating lease liabilities |
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Deferred tax liabilities, net |
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Other long-term liabilities |
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Partners’ capital |
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Common unitholders |
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General partner |
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Accumulated other comprehensive loss, net of taxes |
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Total partners’ capital |
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Total liabilities and partners’ capital |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
3
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended December 31, |
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(in thousands, except per unit data - unaudited) |
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2021 |
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2020 |
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Sales: |
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Product |
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$ |
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$ |
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Installations and services |
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Total sales |
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Cost and expenses: |
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Cost of product |
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Cost of installations and services |
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(Increase) decrease in the fair value of derivative instruments |
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Delivery and branch expenses |
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Depreciation and amortization expenses |
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General and administrative expenses |
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Finance charge income |
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Operating income |
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Interest expense, net |
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( |
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Amortization of debt issuance costs |
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Income before income taxes |
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Income tax expense |
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Net income |
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$ |
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$ |
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General Partner’s interest in net income |
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Limited Partners’ interest in net income |
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$ |
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$ |
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Basic and diluted income per Limited Partner Unit (1): |
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$ |
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$ |
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Weighted average number of Limited Partner units outstanding: |
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Basic and Diluted |
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(1) |
See Note 15 - Earnings Per Limited Partner Unit. |
See accompanying notes to condensed consolidated financial statements.
4
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
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Three Months Ended December 31, |
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(in thousands - unaudited) |
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2021 |
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2020 |
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Net income |
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$ |
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$ |
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Other comprehensive income: |
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Unrealized gain on pension plan obligation |
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Tax effect of unrealized gain on pension plan obligation |
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( |
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Unrealized loss on captive insurance collateral |
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( |
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( |
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Tax effect of unrealized loss on captive insurance collateral |
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Unrealized gain on interest rate hedges |
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Tax effect of unrealized gain on interest rate hedges |
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( |
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( |
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Total other comprehensive income |
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Total comprehensive income |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
5
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
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Three Months Ended December 31, 2021 |
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Number of Units |
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Accum. Other |
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Total |
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(in thousands - unaudited) |
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Common |
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General Partner |
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Common |
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General Partner |
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Comprehensive Income (Loss) |
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Partners’ Capital |
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Balance as of September 30, 2021 |
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$ |
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$ |
( |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Unrealized gain on pension plan obligation |
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— |
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— |
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— |
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— |
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Tax effect of unrealized gain on pension plan obligation |
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— |
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— |
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— |
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— |
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( |
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( |
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Unrealized loss on captive insurance collateral |
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— |
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— |
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— |
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— |
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( |
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( |
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Tax effect of unrealized loss on captive insurance collateral |
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— |
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— |
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— |
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— |
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Unrealized gain on interest rate hedges |
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— |
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— |
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— |
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— |
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Tax effect of unrealized gain on interest rate hedges |
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— |
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— |
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— |
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— |
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( |
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( |
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Distributions |
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— |
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— |
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( |
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( |
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— |
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( |
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Retirement of units |
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( |
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— |
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( |
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— |
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— |
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( |
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Balance as of December 31, 2021 (unaudited) |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Three Months Ended December 31, 2020 |
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Number of Units |
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Accum. Other |
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Total |
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(in thousands - unaudited) |
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Common |
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General Partner |
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Common |
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General Partner |
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Comprehensive Income (Loss) |
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Partners’ Capital |
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Balance as of September 30, 2020 |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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Unrealized gain on pension plan obligation |
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— |
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— |
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— |
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— |
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Tax effect of unrealized gain on pension plan obligation |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Unrealized loss on captive insurance collateral |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Tax effect of unrealized loss on captive insurance collateral |
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— |
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— |
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— |
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— |
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Unrealized gain on interest rate hedges |
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— |
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— |
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— |
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— |
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Tax effect of unrealized gain on interest rate hedges |
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— |
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— |
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— |
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— |
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( |
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( |
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Distributions |
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— |
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— |
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( |
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( |
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— |
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( |
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Retirement of units |
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( |
) |
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— |
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( |
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— |
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— |
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( |
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Balance as of December 31, 2020 (unaudited) |
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$ |
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$ |
( |
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$ |
( |
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$ |
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See accompanying notes to condensed consolidated financial statements.
6
STAR GROUP, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended December 31, |
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(in thousands - unaudited) |
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2021 |
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2020 |
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Cash flows provided by (used in) operating activities: |
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Net income |
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$ |
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$ |
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Adjustment to reconcile net income to net cash provided by (used in) operating activities: |
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(Increase) decrease in fair value of derivative instruments |
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( |
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Depreciation and amortization |
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Recovery for losses on accounts receivable |
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( |
) |
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( |
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Change in deferred taxes |
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( |
) |
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Change in weather hedge contracts |
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( |
) |
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( |
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Changes in operating assets and liabilities: |
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Increase in receivables |
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( |
) |
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( |
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Increase in inventories |
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( |
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( |
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Increase in other assets |
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( |
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( |
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Increase in accounts payable |
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Decrease in customer credit balances |
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( |
) |
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( |
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Increase in other current and long-term liabilities |
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Net cash used in operating activities |
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( |
) |
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( |
) |
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Cash flows provided by (used in) investing activities: |
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Capital expenditures |
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( |
) |
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( |
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Proceeds from sales of fixed assets |
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Proceeds from sale of propane assets |
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— |
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Purchase of investments |
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( |
) |
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( |
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Acquisitions |
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( |
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( |
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Net cash used in investing activities |
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( |
) |
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( |
) |
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Cash flows provided by (used in) financing activities: |
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Revolving credit facility borrowings |
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Term loan repayments |
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( |
) |
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( |
) |
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Distributions |
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( |
) |
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( |
) |
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Unit repurchases |
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( |
) |
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( |
) |
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Customer retainage payments |
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( |
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( |
) |
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Payments of debt issue costs |
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— |
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( |
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Net cash provided by financing activities |
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Net (decrease) increase in cash, cash equivalents, and restricted cash |
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( |
) |
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Cash, cash equivalents, and restricted cash at beginning of period |
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Cash, cash equivalents, and restricted cash at end of period |
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$ |
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$ |
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|
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
The Company is organized as follows:
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Star is a limited partnership, which at December 31, 2021, had outstanding |
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Star owns |
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Petroleum Heat and Power Co., Inc. (“PH&P”) is a wholly owned subsidiary of Star. PH&P is the borrower and Star is the guarantor of the fifth amended and restated credit agreement’s $ |
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, 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, 2021.
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 loss on available-for-sale investments, unrealized gain on interest rate hedges and the corresponding tax effects.
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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:
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Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. |
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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. |
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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. 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.
For fiscal 2022, the Company has entered into weather hedge contracts. 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 2022. The maximum that the Company can receive is $
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New England Teamsters and Trucking Industry Pension Fund (“the NETTI Fund”) Liability
As of December 31, 2021, we had $
Recently Adopted Accounting Pronouncements
The Company did not adopt new standards in the first quarter of fiscal 2022 that have a material impact on its consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires accounting for contract assets and liabilities from contracts with customers in a business combination to be accounted for in accordance with ASC No. 606. The standard is effective for fiscal years beginning after December 15, 2022. The Company has not determined the timing of adoption, but does not expect ASU 2021-08 to have a material impact on its consolidated financial statements and related disclosures.
3) Revenue Recognition
The following disaggregates our revenue by major sources for the three months ended December 31, 2021 and December 31, 2020:
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Three Months Ended December 31, |
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(in thousands) |
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2021 |
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2020 |
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Petroleum Products: |
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Home heating oil and propane |
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$ |
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$ |
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Other petroleum products |
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Total petroleum products |
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Installations and Services: |
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Equipment installations |
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Equipment maintenance service contracts |
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Billable call services |
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Total installations and services |
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Total Sales |
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$ |
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$ |
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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
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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:
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(in thousands) |
Credit Loss Allowance |
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Balance at September 30, 2021 |
$ |
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Current period provision |
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Write-offs, net and other |
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Balance as of December 31, 2021 |
$ |
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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
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 $