UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2021
OR
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
(State or other jurisdiction of
incorporation or organization)
9 West Broad Street, Suite 310, Stamford, Connecticut
(Address of principal executive office)
06-1437793
(I.R.S. Employer
Identification No.)
06902
(Zip Code)
(203) 328-7310
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Units
Trading
Symbol(s)
SGU
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common units held by non-affiliates on March 31, 2021 was approximately $374,735,728.
As of November 30, 2021, the registrant had 38,610,861 common units outstanding.
Documents Incorporated by Reference: None
STAR GROUP, L.P.
2021 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings—Litigation
Mine Safety Disclosures
PART II
Market for the Registrant’s Units and Related Matters
(Reserved)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Principal Accounting Fees and Services
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibits and Financial Statement Schedules
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64
65
66
68
Statement Regarding Forward-Looking Disclosure
PART I
This Annual Report on Form 10-K (this “Report”) includes “forward-looking statements” which represent our expectations or beliefs concerning
future events that involve risks and uncertainties, including those associated with the severity and duration of the novel coronavirus, or COVID-19,
pandemic, the pandemic’s impact on the U.S. and global economies, the timing, scope and effectiveness of federal, state and local governmental responses
to the pandemic, the effect of weather conditions on our financial performance, the price and supply of the products that we sell, the consumption patterns
of our customers, our ability to obtain satisfactory gross profit margins, our ability to obtain new customers and retain existing customers, our ability to
make strategic acquisitions, the impact of litigation, our ability to contract for our current and future supply needs, natural gas conversions, future union
relations and the outcome of current and future union negotiations, the impact of current and future governmental regulations, including climate change,
environmental, health, and safety regulations, the ability to attract and retain employees, customer credit worthiness, counterparty credit worthiness,
marketing plans, cyber-attacks, inflation, global supply chain issues, labor shortages, general economic conditions and new technology. All statements
other than statements of historical facts included in this Report including, without limitation, the statements under “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and elsewhere herein, are forward-looking statements. Without limiting the foregoing, the words
“believe,” “anticipate,” “plan,” “expect,” “seek,” “estimate,” and similar expressions are intended to identify forward-looking statements. Although we
believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be
correct and actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but
are not limited to, those set forth in this Report under the heading “Risk Factors,” “Business Strategy” and “Management’s Discussion and Analysis.”
Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in this Report.
Currently, one of the most significant factors, however, is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on
the financial condition, results of operations, cash flows and performance of the Company, its customers and counterparties, and the global economy and
financial markets. The extent to which COVID-19 impacts us and our customers will depend on future developments, which are highly uncertain and
cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its
impact, the direct and indirect economic effects of the pandemic and containment measures, among others. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. Unless
otherwise required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise after the date of this Report.
ITEM 1.
BUSINESS
Structure
Star Group, L.P. (“Star” the “Company,” “we,” “us,” or “our”) is a home heating oil and propane distributor and services provider with one
reportable operating segment that principally provides heating related services to residential and commercial customers. At a special meeting of unitholders
held on October 25, 2017, our unitholders voted in favor of proposals to have the Company elect to be treated as a corporation, instead of a partnership, for
federal income tax purposes (commonly referred to as a “check-the-box election”), along with amendments to our partnership agreement to effect such
changes in income tax classification, in each case effective November 1, 2017. In addition, the Company changed its name, effective October 25, 2017,
from “Star Gas Partners, L.P.” to “Star Group, L.P.” to more closely align our name with the scope of our product and service offerings. For tax years after
December 31, 2017, unitholders will receive a Form 1099-DIV and will not receive a Schedule K-1 as in previous tax years. Our legal structure has
remained a Delaware limited partnership and the distribution provisions under our limited partnership agreement, including the incentive distribution
structure has remained unchanged. As of November 30, 2021, we had outstanding 38.6 million common partner 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.
3
The following chart depicts the ownership of Star as of November 30, 2021:
Star Group, L.P.
Limited Partners
Common Units
99.2%
General Partner (Kestrel Heat)
General Partner Units
0.8%
Public Unitholders - Common Units
89.8%
Officers and Directors - Common Units
10.2%
Star is organized as follows:
•
•
•
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”).
Our operations are conducted through Petro Holdings, Inc., a Minnesota corporation that is a wholly owned subsidiary of Star Acquisitions,
Inc., and its subsidiaries.
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 $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 13—Long-Term
Debt and Bank Facility Borrowings).
We file annual, quarterly, current and other reports and information with the Securities and Exchange Commission, or SEC. These filings can be
viewed and downloaded from the Internet at the SEC’s website at www.sec.gov. In addition, these SEC filings are available at no cost as soon as reasonably
practicable after the filing thereof on our website at www.stargrouplp.com/sec.cfm. You may also obtain copies of these filings and other information at the
offices of the New York Stock Exchange located at 11 Wall Street, New York, New York 10005. Please note that any Internet addresses provided in this
Annual Report on Form 10-K are for informational purposes only and are not intended to be hyperlinks. Accordingly, no information found and/or
provided at such Internet addresses is intended or deemed to be incorporated by reference herein.
4
Legal Structure
The following chart summarizes our structure as of September 30, 2021.
Business Overview
We are a home heating oil and propane distributor and service provider to residential and commercial customers who heat their homes and
buildings primarily in the Northeast and Mid-Atlantic U.S. regions. As of September 30, 2021, we sold home heating oil and propane to approximately
422,200 full service residential and commercial customers and 71,100 customers on a delivery only basis. Approximately 247,700 of these customers, or
50%, are located in the New York City metropolitan area. We believe we are the largest retail distributor of home heating oil in the United States, based
upon sales volume with a market share in excess of 5.5%. We also sell gasoline and diesel fuel to approximately 26,700 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
18,300 service contracts for natural gas and other heating systems. During fiscal 2021, total sales were comprised approximately 59% from sales of home
heating oil and propane, 22% from other petroleum products, the majority of which is diesel and gasoline, and 19% from the installation and repair of
heating and air conditioning equipment and ancillary services. We provide home heating equipment repair service and natural gas service 24-hours-a-day,
seven-days-a-week, 52 weeks a year. These services are an integral part of our business, and are intended to maximize customer satisfaction and loyalty.
We conduct our business through an operating subsidiary, Petro Holdings, Inc., utilizing multiple local brand names, such as Petro Home Services,
Meenan, and Griffith Energy Services, Inc.
We also offer several pricing alternatives to our residential home heating oil customers, including a variable price (market based) option and a
price-protected option, the latter of which either sets the maximum price or a fixed price that a customer will pay. Users choose the plan they feel best suits
them which we believe increases customer satisfaction. Approximately 95% of our full service residential and commercial home heating oil customers
automatically receive deliveries based on prevailing weather conditions. In addition, approximately 33% of our residential customers take advantage of our
“smart pay” budget payment plan under which their estimated annual oil and propane deliveries and service billings are paid for in a series of equal
monthly installments. We use derivative instruments as needed to mitigate our exposure to market risk associated with our price-protected offerings and the
storing of our physical home heating oil inventory. Given our size, we believe we are able to realize certain benefits of scale and provide consistent, strong
customer service.
5
Currently, we have heating oil and/or propane customers in the following states: Connecticut, Delaware, Maine, Maryland, Massachusetts,
Michigan, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia and the District of Columbia.
Industry Characteristics
Home heating oil is primarily used as a source of fuel to heat residences and businesses in the Northeast and Mid-Atlantic regions. According to
the U.S. Department of Energy—Energy Information Administration, Residential Energy Consumption Survey (released May 2018), these regions account
for 83% (4.8 million of 5.8 million) of the households in the United States where heating oil is the main space-heating fuel and 23% (4.7 million of 20.4
million) of the homes in these regions use home heating oil as their main space-heating fuel. Our experience has been that customers have a tendency to
increase their conservation efforts as the price of home heating oil increases, thereby reducing their consumption.
The retail home heating oil industry is mature, with total market demand expected to decline in the foreseeable future due to conversions to natural
gas, availability of other alternative energy sources and the installations of more fuel efficient heating systems. Therefore, our ability to maintain our
business or grow within the industry is dependent on the acquisition of other retail distributors, the success of our marketing programs, and the growth of
our other service offerings. Based on our records, our customer conversions to natural gas have ranged between 1.1% and 1.4% per year over the last five
years. We believe this may continue or even increase. In addition, there are legislative and regulatory efforts underway in several states seeking to
encourage homeowners to reduce or even eliminate the consumption of carbon based fuels that we sell.
The retail home heating oil industry is highly fragmented, characterized by a large number of relatively small, independently owned and operated
local distributors. Some dealers provide full service, as we do, and others offer delivery only on a cash-on-delivery basis, which we also do to a
significantly lesser extent. In addition, the industry is complex and costly due to regulations, working capital requirements, and the costs and risks of
hedging for price protected customers.
Propane is a by-product of natural gas processing and petroleum refining. Propane use falls into three broad categories: residential and commercial
applications; industrial applications; and agricultural uses. In the residential and commercial markets, propane is used primarily for space heating, water
heating, clothes drying and cooking. Industrial customers use propane generally as a motor fuel to power over-the-road vehicles, forklifts and stationary
engines, to fire furnaces, as a cutting gas and in other process applications. In the agricultural market, propane is primarily used for tobacco curing, crop
drying, poultry breeding and weed control.
The retail propane distribution industry is highly competitive and is generally serviced by large multi-state full-service distributors and small local
independent distributors. Like the home heating oil industry, each retail propane distribution provider operates in its own competitive environment because
propane distributors typically reside in close proximity to their customers. In most retail propane distribution markets, customers can choose from multiple
distributors based on the quality of customer service, safety, reputation and price.
It is common practice in our business to price our liquid products to customers based on a per gallon margin over wholesale costs. As a result, we
believe distributors such as ourselves generally seek to maintain their per gallon margins by passing wholesale price increases through to customers, thus
insulating their margins from the volatility in wholesale prices. However, distributors may be unable or unwilling to pass the entire product cost increases
through to customers. We believe this is especially true in the propane business. In these cases, significant decreases in per gallon margins may result. The
timing of cost pass-throughs can also significantly affect margins. (See Customers and Pricing for a discussion on our offerings).
Business Strategy
Our business strategy is to increase Adjusted EBITDA (See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations for a definition) and cash flow by effectively managing operations while growing and retaining our customer base as a retail distributor of home
heating oil and propane and provider of related products and services. The key elements of this strategy include the following:
6
Pursue select acquisitions Our senior management team has developed expertise in identifying acquisition opportunities and integrating acquired
customers into our operations. We focus on acquiring profitable companies within and outside our current footprint.
We actively pursue home heating oil only companies, propane companies, dual fuel (home heating oil and propane) companies and selectively
target motor fuels acquisitions, especially where they are operating in the markets we currently serve.
Deliver superior customer service We are dedicated to consistently providing our customers with superior service and a positive customer
experience to improve retention and drive additional revenue. We have established programs and conduct surveys to effectively measure customer
satisfaction at certain brands.
We have deployed a customer relationship management solution at most of our larger brands. We believe this allows us to provide a more
consistent customer experience as our employees will have a 360 degree-view of each customer with easy access to key customer information and
customized dashboards to track individual employee performance.
We have resources dedicated to training employees to provide superior and consistent service and enhance the customer experience. This effort is
supported, reinforced and monitored by our local management teams.
Provide complementary service offerings These offerings include, but are not limited to, the sales, service and installation of heating and air
conditioning equipment, and standby home generators. In addition, we also repair and install natural gas heating systems.
Pursue environmental sustainability opportunities We are committed to pursuing initiatives that reduce greenhouse gas emissions across our
product offerings, including blending biofuel (a carbon neutral renewable fuel produced from vegetable oils or animal fats) into our petroleum products and
offering energy efficient heating and air conditioning equipment to our customers.
Seasonality
Our fiscal year ends on September 30. All references to quarters and years respectively in this document are to fiscal quarters and years unless
otherwise noted. The seasonal nature of our business results in the sale of approximately 30% of our volume of home heating oil and propane in the first
fiscal quarter and 50% of our volume in the second fiscal quarter of each fiscal year, the peak heating season. Approximately 25% of our volume of motor
fuel and other petroleum products is sold in each of the four fiscal quarters. We generally realize net income in our first and second fiscal quarters and net
losses during our third and fourth fiscal quarters and we expect that the negative impact of seasonality on our third and fourth fiscal quarter operating
results will continue. In addition, sales volume typically fluctuates from year to year in response to variations in weather, wholesale energy prices and other
factors.
Degree Day
A “degree day” is an industry measurement of temperature designed to evaluate energy demand and consumption. Degree days are based on how
far the average daily temperature departs from 65°F. Each degree of temperature above 65°F is counted as one cooling degree day, and each degree of
temperature below 65°F is counted as one heating degree day. Degree days are accumulated each day over the course of a year and can be compared to a
monthly or a multi-year average to see if a month or a year was warmer or cooler than usual. Degree days are officially observed by the National Weather
Service.
Every ten years, the National Oceanic and Atmospheric Administration (“NOAA”) computes and publishes average meteorological quantities,
including the average temperature for the last 30 years by geographical location, and the corresponding degree days. The latest and most widely used data
covers the years from 1991 to 2020. Our calculations of normal weather are based on these published 30 year averages for heating degree days, weighted
by volume for the locations where we have existing operations.
7
Competition
Most of our operating locations compete with numerous distributors, primarily on the basis of price, reliability of service and response to customer
needs. Each such location operates in its own competitive environment.
Customer Attrition
We measure net customer attrition for our full service residential and commercial home heating oil and propane customers. Net customer attrition is
the difference between gross customer losses and customers added through marketing efforts. Customers added through acquisitions are not included in the
calculation of gross customer gains. However, additional customers that are obtained through marketing efforts at newly acquired businesses are included
in these calculations. Customer attrition percentage calculations include customers added through acquisitions in the denominators of the calculations on a
weighted average basis. Gross customer losses are the result of a number of factors, including price competition, move outs, credit losses and conversions
to natural gas. (See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Customer Attrition.)
Customers and Pricing
The number of home heating oil customers comprise 81% of our product customer base, with propane customers comprising another 14% and
motor fuel and other petroleum product customers making up the remaining 5%. (During fiscal 2021 we sold 305.9 million gallons of home heating oil and
propane and 154.1 million gallons of motor fuel and other petroleum products.)
Our full service home heating oil customer base is comprised of 97% residential customers and 3% commercial customers. Approximately 95% of
our full service residential and commercial home heating oil customers have their deliveries scheduled automatically and 5% of our home heating oil
customer base call from time to time to schedule a delivery. Automatic deliveries are scheduled based on each customer’s historical consumption pattern
and prevailing weather conditions. Our practice is to bill customers promptly after delivery. We offer a balanced payment plan to residential customers in
which a customer’s estimated annual oil purchases and service contract fees are paid for in a series of equal monthly payments. Approximately 33% of our
residential home heating oil customers have selected this billing option.
We offer several pricing alternatives to our residential home heating oil customers. Our variable pricing program allows the price to float with the
heating oil market and other factors. In addition, we offer price-protected programs, which establish either a ceiling or a fixed price per gallon that the
customer pays over a defined period. The following chart depicts the percentage of the pricing plans selected by our residential home heating oil customers
as of the end of the fiscal year.
Variable
Ceiling
Fixed
2021
2020
September 30,
2019
2018
2017
55.0%
39.0%
6.0%
100.0%
54.4%
38.5%
7.1%
100.0%
53.9%
39.1%
7.0%
100.0%
55.2%
36.9%
7.9%
100.0%
52.6%
37.1%
10.3%
100.0%
Sales to residential customers ordinarily generate higher per gallon margins than sales to commercial customers. Due to greater price sensitivity,
our own internal marketing efforts, and hedging costs of residential price-protected customers, the per gallon margins realized from price-protected
customers generally are less than from variable priced residential customers.
The propane customer base has a similar profile to heating oil residential and commercial customers. Pricing plans chosen by propane customers
are almost exclusively variable in nature where selling prices will float with the propane market and other commercial factors.
The motor fuel and other petroleum products customer group includes commercial and industrial customers of unbranded diesel, gasoline, kerosene
and related distillate products. We sell products to these customers through contracts of various terms or through a competitive bidding process.
8
Derivatives
We use derivative instruments in order to mitigate our exposure to market risk associated with the purchase of home heating oil for our price-
protected customers, physical inventory on hand, inventory in transit, priced purchase commitments, and the variable interest rate on a portion of our term
loan. Currently, the Company’s derivative instruments are with the following counterparties: Bank of America, N.A., Bank of Montreal, Cargill, Inc.,
Citibank, N.A., JPMorgan Chase Bank, N.A., Key Bank, N.A., Toronto-Dominion Bank and Wells Fargo Bank, N.A.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-10-05, Derivatives and Hedging, requires
that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities. To the extent our interest rate
derivative instruments designated as cash flow hedges are effective, as defined under this guidance, changes in fair value are recognized in other
comprehensive income (loss) until the hedged item is recognized in earnings. We have elected not to designate our commodity derivative instruments as
hedging instruments under this guidance, and as a result, the changes in fair value of the derivative instruments during the holding period are recognized in
our statement of operations. Therefore, we experience volatility in earnings as outstanding derivative instruments are marked to market and non-cash gains
and losses are recorded prior to the sale of the commodity to the customer. The volatility in any given period related to unrealized non-cash gains or losses
on derivative instruments can be significant to our overall results. However, we ultimately expect those gains and losses to be offset by the cost of product
when purchased. Depending on the risk being hedged, realized gains and losses are recorded in cost of product, cost of installations and services, or
delivery and branch expenses.
Suppliers and Supply Arrangements
We purchase our product for delivery in either barge, pipeline or truckload quantities, and as of September 30, 2021, had contracts with
approximately 125 third-party terminal sites for the right to temporarily store petroleum products at their facilities. Home heating oil and propane purchases
are made under supply contracts or on the spot market. We have entered into market price based contracts for approximately 74% of our expected home
heating oil and propane requirements for the fiscal 2022 heating season. For the fiscal year 2022 heating season, approximately 60% of the Company’s
contracted home heating oil volume with suppliers has a biofuel component (an increase from the 7% of the Company’s contracted home heating oil
volume with a biofuel component in fiscal 2021). We also have market price based contracts for approximately 29% of our expected diesel and gasoline
requirements for fiscal 2022.
During fiscal 2021, Motiva Enterprises LLC and Global Companies LLC provided approximately 12% each of our petroleum product purchases.
During fiscal 2020, Shell Oil Company, Motiva Enterprises LLC and Global Companies LLC provided approximately 13%, 12% and 11% respectively, of
our petroleum product purchases. Supply contracts typically have terms of 6 to 12 months. All of the supply contracts provide for minimum quantities and
in most cases do not establish in advance the price of home heating oil or propane. This price is based upon a published market index price at the time of
delivery or pricing date plus an agreed upon differential. We believe that our policy of contracting for the majority of our anticipated supply needs with
diverse and reliable sources will enable us to obtain sufficient product should unforeseen shortages develop in worldwide supplies.
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Liquid Product Price Volatility
Volatility, which is reflected in the wholesale price of liquid products, including home heating oil, propane and motor fuels, has a larger impact on
our business when prices rise. Home heating oil consumers are price sensitive to heating cost increases, and this often leads to increased gross customer
losses. As a commodity, the price of home heating oil is generally impacted by many factors, including economic and geopolitical forces. The price of
home heating oil is closely linked to the price of diesel fuel. The volatility in the wholesale cost of diesel fuel as measured by the New York Mercantile
Exchange (“NYMEX”), for the fiscal years ending September 30, 2017, through 2021, on a quarterly basis, is illustrated in the following chart (price per
gallon):
Fiscal 2021 (a)
Fiscal 2020
Fiscal 2019
Fiscal 2018
Fiscal 2017
Quarter Ended
December 31
March 31
June 30
September 30
Low
High
High
High
Low
$ 1.08 $ 1.51 $ 1.86 $ 2.05 $ 1.66 $ 2.44 $ 1.74 $ 2.08 $ 1.39 $ 1.70
1.46 1.97 0.95 2.06 1.70 2.04 1.84 2.14 1.49 1.70
1.77 2.16 0.61 1.22 1.78 2.12 1.96 2.29 1.37 1.65
1.91 2.34 1.08 1.28 1.75 2.08 2.05 2.35 1.45 1.86
High
Low
Low
Low
High
(a) On November 30, 2021, the NYMEX ultra low sulfur diesel contract closed at $2.06 per gallon or $0.27 per gallon higher than the average of $1.79
in Fiscal 2021.
Acquisitions
Part of our business strategy is to pursue select acquisitions. Each acquired company’s operating results are included in the Company’s
consolidated financial statements starting on its acquisition date. Customer lists, other intangibles (excluding goodwill) and trade names are amortized on a
straight-line basis over seven to twenty years.
During fiscal 2021, the Company acquired two propane and three heating oil dealers for approximately $42.5 million; $40.7 million in cash and
$1.8 million of deferred liabilities. The gross purchase price was allocated $37.3 million to goodwill and intangible assets, $6.2 million to fixed assets and
reduced by $1.0 million to working capital.
During fiscal 2020, the Company acquired two heating oil dealers for approximately $3.3 million; $3.0 million in cash and $0.3 million of deferred
liabilities. The gross purchase price was allocated $3.2 million to goodwill and intangible assets, $0.6 million to fixed assets and $0.5 million to working
capital. The Company also completed the purchase of assets related to our fiscal 2019 acquisition of a heating oil dealer for an aggregate purchase price of
approximately $1.2 million.
During fiscal 2019, the Company acquired one of its subcontractors, a liquid product dealer and the assets of a propane dealer with a combined
total of approximately 24,000 home heating oil and propane accounts for an aggregate purchase price of approximately $60.9 million in cash. The gross
purchase price was allocated $44.7 million to goodwill and intangible assets, $13.7 million to fixed assets and $2.5 million to working capital.
Employees and Human Capital Management
We consider our employees a key factor to Star’s success and we are focused on attracting and retaining the best employees at all levels of our
business. In particular, our dedication to providing superior customer service depends significantly on employee satisfaction and retention. We strive to
create a productive and collaborative work environment for our employees. Our human capital measures and objectives focus on safety of our employees,
employee benefits, and employee development and training.
The safety of our employees and customers is paramount. We strive to ensure that all employees feel safe in their respective work environment.
Since March 2020, a majority of our office personnel are working remotely. Our field employees are following COVID-19 guidelines and we continue to
make deliveries and provide service to our customers. As peak heating season begins, we have cautiously returned some of customer service, credit, service
dispatch, and inside sales employees back into our facilities with our team’s health and well-being in mind. We believe that our employees have adapted
well and continue to be flexible to the changing working conditions
To attract talent and meet the needs of our employees, we offer benefits packages for full-time employees. We offer a health and welfare and
retirement program to all eligible employees. We also provide our employees with
10
resources for professional development including technical training, feedback and performance reviews from supervisors, and management training.
As of September 30, 2021, we had 3,121 employees, of whom 783 were office, clerical and customer service personnel; 898 were equipment
technicians; 507 were fuel delivery drivers and mechanics; 613 were management and 320 were employed in sales. Of these employees 1,375 (44%) are
represented by 58 different collective bargaining agreements with local chapters of labor unions. Due to the seasonal nature of our business and depending
on the demands of the 2022 heating season, we anticipate that we will augment our current staffing levels during the heating season from among the 336
employees on temporary leave of absence as of September 30, 2021. There are 17 collective bargaining agreements up for renewal in fiscal 2022, covering
approximately 295 employees (10%). We believe that our relations with both our union and non-union employees are generally satisfactory.
Government Regulations
We are subject to various federal, state and local environmental, health and safety laws and regulations. Generally, these laws impose limitations on
the discharge or emission of pollutants and establish standards for the handling of solid and hazardous wastes. These laws include the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Clean Air Act, the
Occupational Safety and Health Act, the Emergency Planning and Community Right to Know Act, the Clean Water Act, the Oil Pollution Act, and
comparable state statutes. CERCLA, also known as the “Superfund” law, imposes joint and several liabilities without regard to fault or the legality of the
original conduct on certain classes of persons that are considered to have contributed to the release or threatened release of a hazardous substance into the
environment. Products stored and/or delivered by us and certain automotive waste products generated by our fleet are hazardous substances within the
meaning of CERCLA or otherwise subject to investigation and cleanup under other environmental laws and regulations. While we are currently not
involved with any material CERCLA claims, and we have implemented programs and policies designed to address potential liabilities and costs under
applicable environmental laws and regulations, failure to comply with such laws and regulations could result in civil or criminal penalties or injunctive
relief in cases of non-compliance or impose liability for remediation costs.
We have incurred and continue to incur costs to address soil and groundwater contamination at some of our locations, including legacy
contamination at properties that we have acquired. A number of our properties are what is currently undergoing remediation, in some instances funded by
prior owners or operators contractually obligated to do so. To date, no material issues have arisen with respect to such prior owners or operators addressing
such remediation, although there is no assurance that this will continue to be the case. In addition, we have been subject to proceedings by regulatory
authorities for alleged violations of environmental and safety laws and regulations. We do not expect any of these liabilities or proceedings of which we are
aware to result in material costs to, or disruptions of, our business or operations.
Transportation of our products by truck is subject to regulations promulgated under the Federal Motor Carrier Safety Act. These regulations cover
the transportation of hazardous materials and are administered by the United States Department of Transportation or similar state agencies. Several of our
oil terminals are governed under the United States Coast Guard operations Oversite, Federal OPA 90 FRP programs and Federal Spill Prevention Control
and Countermeasure programs. All of our propane bulk terminals are governed under Homeland Security Chemical Facility Anti-Terrorism Standards
programs. We conduct ongoing training programs to help ensure that our operations are in compliance with applicable regulations. We maintain various
permits that are necessary to operate some of our facilities, some of which may be material to our operations.
There is increasing attention in the United States and worldwide concerning the issue of climate change and the effect of emissions of greenhouse
gases (“GHG”), in particular from the combustion of fossil fuels. Federal, regional and state regulatory authorities in many jurisdictions have begun taking
steps to regulate GHG emissions including proposals that encourage homeowners to switch to alternate sources of energy than those we sell.
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ITEM 1A.
RISK FACTORS
You should consider carefully the risk factors discussed below, as well as all other information, as an investment in the Company involves a high
degree of risk. We are subject to certain risks and hazards due to the nature of the business activities we conduct. The risks discussed below, any of which
could materially and adversely affect our business, financial condition, cash flows, and results of operations, could result in a partial or total loss of your
investment, and are not the only risks we face. We may experience additional risks and uncertainties not currently known to us or, as a result of
developments occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect our business, financial
condition, cash flows and results of operations.
Risk Factors Summary
Below is a summary of material factors that make an investment in our common units speculative or risky:
Risks Related to the COVID-19 Pandemic
•
•
The COVID-19 pandemic has and may continue to adversely impact our business and operations.
Mandatory COVID-19 vaccination of employees could impact our ability to hire and retain employees and may have a material adverse effect
on our business.
Risks Related to Demand and Our Operations
•
•
•
•
Our operating results will be adversely affected if we experience significant net customer attrition in our home heating oil and propane
customer base, such as from natural gas conversions.
Because of the highly competitive nature of our business, we may not be able to retain existing customers or acquire new customers.
If we do not make acquisitions on economically acceptable terms, our future growth will be limited.
Since weather conditions may adversely affect the demand for home heating oil and propane, our business, operating results and financial
condition are vulnerable to warm winters as well as other seasonal fluctuations.
Risks Related to Product Pricing and Costs
•
•
•
•
•
•
•
High product prices can lead to customer attrition, resulting in reduced demand for our products and adversely affect our liability.
Our hedging strategy may adversely affect our liquidity.
Sudden and sharp oil price increases that cannot be passed on to customers may adversely affect our operating results.
Significant declines in the wholesale price of home heating oil may cause price-protected customers to renegotiate or terminate their
arrangements which may adversely impact our operating results.
A significant portion of our home heating oil volume is sold to price-protected customers, and our results of operations could be adversely
affected if we are not able to hedge against fluctuations in the volume and cost of product sold to those customers.
Our risk management policies cannot eliminate all commodity risk, basis risk, or the impact of adverse market conditions.
Our obligation to fund multi-employer pension plans may have an adverse impact on us.
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Risks Related to Our Legal and Environmental Activities
•
•
•
•
•
We are subject to operating and litigation risks that could adversely affect our operating results whether or not we are covered by insurance.
Our results of operations and financial condition may be adversely affected by governmental regulation and associated environmental, tax and
regulatory costs.
Greenhouse gas emissions or other legislation or regulations intended to address climate change could increase our operating costs, adversely
affecting our financial results, growth, cash flows and results of operations.
Our operations would be adversely affected if service at our third-party terminals or on the common carrier pipelines used is interrupted.
We depend on the use of information technology systems that have been and may in the future be a target of cyber-attacks.
Risks Related to People and Competition
•
•
•
Conflicts of interest within our company have arisen and could arise again in the future.
Our inability to identify qualified individuals for our workforce could adversely impact our operations.
A substantial portion of our workforce is unionized, and, as a result, we may face labor actions that could disrupt our operations.
Risks Related to Ownership of Our Common Units
•
•
Cash distributions are not guaranteed and may fluctuate with performance and reserve requirements.
If we fail to maintain an effective system of internal controls, then we may not be able to accurately report our financial results or prevent fraud,
causing unitholders to lose confidence in our financial reporting, which could harm our business.
Risks Related to Our Indebtedness
•
•
Our substantial debt, as well as a number of restrictive covenants in our Credit Agreement, including through if the indebtedness outstanding
thereunder is accelerated, could impair our financial condition and ability to obtain additional financing.
We are not required to accumulate cash for the purpose of meeting our future debt obligations, which may limit the cash available to service the
final payment due under our Credit Agreement.
General Risk Factors
•
•
•
•
Economic conditions, which include disruptions in our supply chain and other factors, affecting the delivery of our products and services as
well as demand for our products could adversely impact our business.
Continuing inflation may hurt our sales margins and profitability.
Energy efficiency and new technology may reduce the demand for our products and adversely affect our operating results.
The risk of global terrorism and political unrest may adversely affect the economy and availability of the products that we sell and have a
material adverse effect on our business.
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Risks Related to the COVID-19 Pandemic
The COVID-19 pandemic has caused disruptions to our operations and has impacted our business and may continue to impact our business and
operations in numerous ways that remain unpredictable.
Our business has been and may continue to be impacted by the effects of the ongoing COVID-19 pandemic. This pandemic and related measures
taken to contain the spread of COVID-19, such as government-mandated business closures, office closures, state and local orders to “shelter in place,” and
travel and transportation restrictions, have negatively affected the U.S. and global economies, disrupted U.S. and global supply chains and led to
unprecedented levels of unemployment. There continues to be uncertainty around the COVID-19 pandemic, its duration, and its impact on U.S. and global
economic activity and consumer behavior. The Delta variant of COVID-19, which appears to be the most transmissible and contagious variant to date, has
caused a surge in COVID-19 cases globally. The impact of the Delta variant, or other variants that may emerge, cannot be predicted at this time, and could
depend on numerous factors, including the availability of vaccines in different parts of the world, vaccination rates among the population, the effectiveness
of COVID-19 vaccines against the Delta variant and other variants, and the response by governmental bodies to reinstate mandated business closures,
orders to “shelter in place,” and travel and transportation restrictions. If workers at one or more of our offices or the offices of our suppliers become ill or
are quarantined and in either or both events are therefore unable to work, or we experience other labor constraints resulting from employee turnover or
departures due to resistance to vaccine mandates, our operations could be subject to disruption due to staffing shortages. Due to the surge in the Delta
variant of the coronavirus, we extended the remote working arrangements implemented for the majority of our office personnel in response to the
pandemic. Our remote working arrangements may become strained or result in service delays, especially as these arrangements extend into the peak
heating oil season. Further, certain of our customers’ financial condition may continue to be adversely impacted as a result of the impacts of COVID-19, or
another global public health pandemic, and efforts taken to prevent its spread, which could result in reduced demand or impact their ability to pay for our
products and services. We are also experiencing disruptions in the procurement of certain HVAC equipment and home generators.
The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business
strategies and initiatives, will depend on future developments, including the duration and spread of COVID-19 and related restrictions on travel and general
mobility, the price of petroleum products and the timing, scope and effectiveness of federal, state and local governmental responses, all of which are
uncertain and cannot be predicted. An extended period of global supply chain and economic disruption caused by COVID-19 and its variants could
materially affect our business, results of operations, access to sources of liquidity and financial condition, and we have experienced the negative impacts of
such disruption since March 2020.
Mandatory COVID-19 vaccination of employees could impact our workforce and have a material adverse effect on our business and results of
operations.
On September 9, 2021, President Biden announced a proposed new rule requiring all employers with at least 100 employees to require that their
employees be fully vaccinated or tested weekly. The U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) issued
emergency rules on November 5, 2021 to carry out this mandate. On November 18, 2021, the OSHA suspended enforcement of the vaccine mandate after
a U.S. federal court of appeals panel reaffirmed an earlier temporary halt of the mandate. At this time, it is unclear, among other things, if the vaccine
mandate will apply to all employees, including our commercial drivers and service technicians, or only to employees who work in the office and how
compliance will be documented.
As a company with more than 100 employees, it is anticipated that we would be subject to the OSHA regulation mandating COVID-19
vaccinations for a portion of our workforce. OSHA’s vaccine requirement and the proposed new regulation, if implemented, may result in employee
attrition, which could materially adversely affect future revenues and costs and have a material adverse effect on our business and results of
operations. The vaccine mandate may also put us at a competitive disadvantage vis-à-vis many of our competitors, which have less than 100 employees
and are not subject to the vaccine mandate. At this time, it is not possible to predict with certainty the exact impact that the proposed new regulation or the
Company’s vaccine requirement will have on us or on our workforce.
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Risks Related to Demand and Our Operations
Our operating results will be adversely affected if we continue to experience significant net customer attrition in our home heating oil and propane
customer base.
The following table depicts our gross customer gains, gross customer losses and net customer attrition from fiscal year 2017 to fiscal year 2021.
Net customer attrition is the difference between gross customer losses and customers added through marketing efforts. Customers added through
acquisitions are not included in the calculation of gross customer gains. However, additional customer gains that are obtained through marketing efforts and
losses at newly acquired businesses are included in these calculations from the point of closing going forward. Customer attrition percentage calculations
include customers added through acquisitions in the denominators of the calculations on a weighted average basis from the closing date.
Gross customer gains
Gross customer losses
Net attrition
2021
10.7%
14.6%
(3.9%)
Fiscal Year Ended September 30,
2019
2020
2018
12.2%
15.6%
(3.4%)
12.9%
18.3%
(5.4%)
13.0%
16.2%
(3.2%)
2017
13.1%
14.6%
(1.5%)
The gain of a new customer does not fully compensate for the loss of an existing customer because of the expenses incurred during the first year to
add a new customer. Typically, the per gallon margin realized from a new account added is less than the margin of a customer that switches to another
provider. Customer losses are the result of various factors, including but not limited to:
•
•
•
•
•
price competition;
customer relocations and home sales/foreclosures;
credit worthiness;
service disruptions; and
conversions to natural gas.
The continuing volatility in the energy markets can intensify price competition and add to our difficulty in reducing net customer attrition. Warmer
than normal weather can also contribute to an increase in attrition as customers perceive less need for a full service provider like ourselves. Additionally,
the continuing economic impact of COVID-19 and its variants could increase future attrition due to higher losses from credit related issues.
If we are not able to reduce the current level of net customer attrition or if such level should increase, attrition will have a material adverse effect on
our business, operating results and cash available for distributions to unitholders. For additional information about customer attrition, see Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Customer Attrition.”
Because of the highly competitive nature of our business, we may not be able to retain existing customers or acquire new customers, which would
have an adverse impact on our business, operating results and financial condition.
Our business is subject to substantial competition. Most of our operating locations compete with numerous distributors, primarily on the basis of
price, reliability of service and responsiveness to customer service needs. Each operating location operates in its own competitive environment.
We compete with distributors offering a broad range of services and prices, from full-service distributors, such as ourselves, to those offering
delivery only. As do many companies in our business, we provide home heating equipment repair service on a 24-hour-a-day, seven-day-a-week, 52 weeks
a year basis. We believe that this tends to build customer loyalty. In some instances homeowners have formed buying cooperatives that seek to purchase
home heating oil from distributors at a price lower than individual customers are otherwise able to obtain. We also compete for retail customers with
suppliers of alternative energy products, principally natural gas, propane (in the case of our home heating oil operations) and electricity. If we are unable to
compete effectively, we may lose
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existing customers and/or fail to acquire new customers, which would have a material adverse effect on our business, operating results and financial
condition.
Our operating results will be adversely affected if we experience significant net customer attrition from natural gas conversions.
The following table depicts our estimated customer losses to natural gas conversions for the last five fiscal years. Losses to natural gas in our
footprint for the home heating oil industry could be greater or less than our estimates.
2021
Fiscal Year Ended September 30,
2019
2020
2018
2017
Customer losses to natural gas conversion
(1.1)%
(1.1)%
(1.4)%
(1.3)%
(1.2)%
In addition to our direct customer losses to natural gas competition, any conversion to natural gas by a heating oil consumer in our geographic
footprint reduces the pool of available customers from which we can gain new heating oil customers, and could have a material adverse effect on our
business, operating results and financial condition.
If we do not make acquisitions on economically acceptable terms, our future growth will be limited.
Generally, heating oil and propane are alternative energy sources to new housing construction, because natural gas is usually selected when natural
gas infrastructure exists. In certain geographies, utilities are building out their natural gas infrastructure. As such, our industry is not a growth industry.
Accordingly, future growth will depend on our ability to make acquisitions on economically acceptable terms. We cannot assure that we will be able to
identify attractive acquisition candidates in our sector in the future or that we will be able to acquire businesses on economically acceptable terms. Adverse
operating and financial results may limit our access to capital and adversely affect our ability to make acquisitions. Under the terms of our fifth amended
and restated credit agreement (“Credit Agreement”), we are restricted from making any individual acquisition in excess of $25.0 million without the
lenders’ approval. In addition, to make an acquisition, we are required to have Availability (as defined in our Credit Agreement) of at least $40.0 million,
on a historical pro forma and forward-looking basis. Furthermore, as long as the bank term loan is outstanding, we must be in compliance with the senior
secured leverage ratio (as defined in our Credit Agreement). These covenant restrictions may limit our ability to make acquisitions. Any acquisition may
involve potential risks to us and ultimately to our unitholders, including:
•
•
•
•
•
•
•
•
an increase in our indebtedness;
an increase in our working capital requirements;
an inability to integrate the operations of the acquired business;
an inability to successfully expand our operations into new territories;
the diversion of management’s attention from other business concerns;
an excess of customer loss from the acquired business;
loss of key employees from the acquired business; and
the assumption of additional liabilities including environmental liabilities.
In addition, acquisitions may be dilutive to earnings and distributions to unitholders, and any additional debt incurred to finance acquisitions may,
among other things, affect our ability to make distributions to our unitholders.
Since weather conditions may adversely affect the demand for home heating oil and propane, our business, operating results and financial
condition are vulnerable to warm winters.
Weather conditions in regions in which we operate have a significant impact on the demand for home heating oil and propane because our
customers depend on this product largely for space heating purposes. As a result, weather conditions may materially adversely impact our business,
operating results and financial condition. During the peak-heating season of October through March, sales of home heating oil and propane historically
have
16
represented approximately 80% of our annual volume sold. Actual weather conditions can vary substantially from year to year or from month to month,
significantly affecting our financial performance. Climate change may result in increased weather volatility. Warmer than normal temperatures in one or
more regions in which we operate can significantly decrease the total volume we sell and the gross profit realized and, consequently, our results of
operations.
To partially mitigate the adverse effect of warm weather on cash flows, we have used weather hedge contracts for a number of years. In general,
such weather hedge contracts provide that we are entitled to receive a specific payment per heating degree-day shortfall, when the total number of heating
degree-days in the hedge period is less than the ten year average. The “payment thresholds,” or strikes, are set at various levels. The hedge period runs from
November 1, through March 31, of a fiscal year taken as a whole.
For fiscal year 2022, we entered into a weather hedging contracts under which we are entitled to a payment capped at $12.5 million if degree days
are less than the Payment Threshold and we are obligated to make an annual payment capped at $5.0 million if degree days exceed the Payment Threshold.
However, there can be no assurance that such weather hedge contracts would fully or substantially offset the adverse effects of warmer weather on our
business and operating results during such period or that colder weather will result in enough profit to offset a payment by the Company to its provider.
Our operating results are subject to seasonal fluctuations.
Our operating results are subject to seasonal fluctuations since the demand for home heating oil and propane is greater during the first and second
fiscal quarter of our fiscal year, which is the peak heating season. The seasonal nature of our business has resulted on average in the last five years in the
sale of approximately 30% of our volume of home heating oil and propane in the first fiscal quarter and 50% of our volume in the second fiscal quarter of
each fiscal year. As a result, we generally realize net income in our first and second fiscal quarters and net losses during our third and fourth fiscal quarters
and we expect that the negative impact of seasonality on our third and fourth fiscal quarter operating results will continue. Thus any material reduction in
the profitability of the first and second quarters for any reason, including warmer than normal weather, generally cannot be made up by any significant
profitability improvements in the results of the third and fourth quarters.
Risks Related to Product Pricing and Costs
High product prices can lead to customer conservation and attrition, resulting in reduced demand for our products.
Prices for our products are subject to volatile fluctuations in response to changes in supply and other market conditions. During periods of high
product costs our prices generally increase. High prices can lead to customer conservation and attrition, resulting in reduced demand for our products.
Increases in wholesale product costs may have adverse effects on our business, financial condition, results of operations, or liquidity.
Increases in wholesale product costs may have adverse effects on our business, financial condition and results of operations, including the
following:
•
•
•
•
•
customer conservation or attrition due to customers converting to lower cost heating products or suppliers;
reduced liquidity as a result of higher receivables, and/or inventory balances as we must fund a portion of any increase in receivables,
inventory and hedging costs from our own resources, thereby tying up funds that would otherwise be available for other purposes;
higher bad debt expense and credit card processing costs as a result of higher selling prices;
higher interest expense as a result of increased working capital borrowing to finance higher receivables and/or inventory balances; and
higher vehicle fuel costs.
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If increases in wholesale product costs cause our working capital requirements to exceed the amounts available under our revolving credit facility
or should we fail to maintain the required availability or fixed charge coverage ratio, we would not have sufficient working capital to operate our business,
which could have a material adverse effect on our financial condition and results of operations.
Our business requires a significant amount of working capital to finance inventory and accounts receivable generated during the heating season.
Under our Credit Agreement, we may borrow up to $300 million, which increases to $450 million during the peak winter months from December through
April of each fiscal year. We are obligated to meet certain financial covenants under our Credit Agreement, including the requirement to maintain at all
times either excess availability (borrowing base less amounts borrowed and letters of credit issued) of 12.5% of the revolving credit commitment then in
effect or a fixed charge coverage ratio (as defined in our Credit Agreement) of not less than 1.1. In addition, as long as our term loan is outstanding, our
senior secured leverage ratio cannot be more than 3.0 as calculated as of the quarters ending June 30 or September 30, and no more than 4.5 as calculated
as of the quarters ending December 31 or March 31.
At December 31, 2021, we expect to have approximately 22 million gallons of priced purchase commitments and physical inventory hedged with a
futures contract or swap. If the wholesale price of heating oil increased $1 per gallon, our near term liquidity in December would be reduced by $22.0
million.
At September 30, 2021, we had approximately 111,500 customers, or 33% of our residential customer base, on the balanced payment plan in which
a customer’s estimated annual oil purchases and service contract fees are paid for in a series of equal monthly payments. Increases in wholesale prices
could reduce our liquidity if we failed to recalculate the balanced payments on a timely basis or if customers resist higher balanced payments. These
customers could possibly owe us more in the future than we had budgeted. Generally, customer credit balances are at their low point after the end of the
heating season and at their peak prior to the beginning of the heating season.
Our hedging strategy may adversely affect our liquidity.
We purchase derivatives, futures and swaps from members of our lending group in order to mitigate exposure to market risk associated with our
inventory and the purchase of home heating oil for price-protected customers. Future positions require an initial cash margin deposit and daily mark to
market maintenance margin, whereas options are generally paid for as they expire. Mark-to-market exposure reduces our borrowing base and as such can
reduce the amount available to us under our Credit Agreement. The highest mark to market reserve against our borrowing base for these derivative
instruments with our lending group was $13.2 million, $20.2 million, and $22.7, during fiscal years 2021, 2020, and 2019 respectively.
We also purchase call options from members of our lending group to hedge the price of the products to be sold to our price-protected customers
which usually require us to pay an upfront cash payment. This reduces our liquidity, as we must pay for the option before any sales are made to the
customer. We further purchase futures contracts with members of our lending group in order to mitigate exposure to market risk associated with physical
inventory. Our futures contracts require an initial cash deposit and maintenance margin for changes in the market value of the contracts.
Sudden and sharp oil price increases that cannot be passed on to customers may adversely affect our operating results.
Our industry is a “margin-based” business in which gross profit depends on the excess of sales prices per gallon over supply costs per gallon.
Consequently, our profitability is sensitive to changes in the wholesale product cost caused by changes in supply or other market conditions. These factors
are beyond our control and thus, when there are sudden and sharp increases in the wholesale cost of home heating oil and propane, we may not be able to
pass on these increases to customers through increased retail sales prices. In an effort to retain existing accounts and attract new customers we may offer
discounts, which will impact the net per gallon gross margin realized.
Significant declines in the wholesale price of home heating oil may cause price-protected customers to renegotiate or terminate their arrangements
which may adversely impact our gross profit and operating results.
When the wholesale price of home heating oil declines significantly after a customer enters into a price protection arrangement, some customers
attempt to renegotiate their arrangement in order to enter into a lower cost pricing plan with us or terminate their arrangement and switch to a
competitor. Under our current price-protected
18
programs, approximately 39.0% and 6.0% of our residential customers are respectively categorized as being either ceiling or fixed as of September 30,
2021.
A significant portion of our home heating oil volume is sold to price-protected customers (ceiling and fixed) and our gross margins could be
adversely affected if we are not able to effectively hedge against fluctuations in the volume and cost of product sold to these customers.
A significant portion of our home heating oil volume is sold to individual customers under an arrangement pre-establishing the ceiling sales price
or a fixed price of home heating oil over a fixed period. When the customer makes a purchase commitment for the next period we currently purchase option
contracts, swaps and futures contracts for a substantial majority of the heating oil that we expect to sell to these price-protected customers. The amount of
home heating oil volume that we hedge per price-protected customer is based upon the estimated fuel consumption per average customer, per month. If the
actual usage exceeds the amount of the hedged volume on a monthly basis, we could be required to obtain additional volume at unfavorable margins. In
addition, should actual usage in any month be less than the hedged volume (including, for example, as a result of early terminations by fixed price
customers), our hedging losses could be greater. Currently, we have elected not to designate our derivative instruments as hedging instruments under FASB
ASC 815-10-05 Derivatives and Hedging, and the change in fair value of the derivative instruments is recognized in our statement of operations. Therefore,
we experience volatility in earnings as these currently outstanding derivative contracts are marked to market and non-cash gains or losses are recorded in
the statement of operations.
Our risk management policies cannot eliminate all commodity risk, basis risk, or the impact of adverse market conditions which can adversely
affect our financial condition, results of operations and cash available for distribution to our unitholders. In addition, any noncompliance with our
risk management policies could result in significant financial losses.
While our hedging policies are designed to minimize commodity risk, some degree of exposure to unforeseen fluctuations in market conditions
remains. For example, we change our hedged position daily in response to movements in our inventory. Any difference between the estimated future sales
from inventory and actual sales will create a mismatch between the amount of inventory and the hedges against that inventory, and thus change the
commodity risk position that we are trying to maintain. Also, significant increases in the costs of the products we sell can materially increase our costs to
carry inventory. We use our revolving credit facility as our primary source of financing to carry inventory and may be limited on the amounts we can
borrow to carry inventory. Basis risk describes the inherent market price risk created when a commodity of certain grade or location is purchased, sold or
exchanged as compared to a purchase, sale or exchange of a like commodity at a different time or place. Transportation costs and timing differentials are
components of basis risk. For example, we use the NYMEX to hedge our commodity risk with respect to pricing of energy products traded on the
NYMEX. Physical deliveries under NYMEX contracts are made in New York Harbor. To the extent we take deliveries in other ports, such as Boston
Harbor, we may have basis risk. In a backward market (when prices for future deliveries are lower than current prices), basis risk is created with respect to
timing. In these instances, physical inventory generally loses value as basis declines over time. Basis risk cannot be entirely eliminated, and basis exposure,
particularly in backward or other adverse market conditions, can adversely affect our financial condition, results of operations and cash available for
distribution to our unitholders.
We monitor processes and procedures to reduce the risk of unauthorized trading and to maintain substantial balance between purchases and sales or
future delivery obligations. We can provide no assurance, however, that these steps will detect and/or prevent all violations of such risk management
policies and procedures, particularly if deception or other intentional misconduct is involved.
Our obligation to fund multi-employer pension plans to which we contribute may have an adverse impact on us.
We participate in a number of multi-employer pension plans for current and former union employees covered under collective bargaining
agreements. The risks of participating in multi-employer plans are different from single-employer plans in that assets contributed are pooled and may be
used to provide benefits to current and former employees of other participating employers. Several factors could require us to make significantly higher
future contributions to these plans, including the funding status of the plan, unfavorable investment performance, insolvency or withdrawal of participating
employers, changes in demographics and increased benefits to
19
participants. Several of these multi-employer plans to which we contribute are underfunded, meaning that the value of such plans’ assets are less than the
actuarial value of the plans’ benefit obligations.
We may be subject to additional liabilities imposed by law as a result of our participation in multi-employer defined benefit pension plans. Various
Federal laws impose certain liabilities upon an employer who is a contributor to a multi-employer pension plan if the employer withdraws from the plan or
the plan is terminated or experiences a mass withdrawal, potentially including an allocable share of the unfunded vested benefits in the plan for all plan
participants, not just our retirees. Accordingly, we could be assessed our share of unfunded liabilities should we terminate participation in these plans, or
should there be a mass withdrawal from these plans, or if the plans become insolvent or otherwise terminate.
While we currently have no intention of permanently terminating our participation in or otherwise withdrawing from any underfunded multi-
employer pension plan, there can be no assurance that we will not be required to record material withdrawal liabilities or be required to make material cash
contributions in the future to one or more underfunded plans, whether as a result of withdrawing from a plan, or of agreeing to any alternate funding option,
or due to any of the other risks associated with being a participating employer in an underfunded plan. Any of these events could negatively impact our
liquidity and financial results.
We rely on the continued solvency of our derivatives, insurance and weather hedge counterparties.
If counterparties to the derivative instruments that we use to hedge the cost of home heating oil sold to price-protected customers, physical
inventory and our vehicle fuel costs were to fail, our liquidity, operating results and financial condition could be materially adversely impacted, as we
would be obligated to fulfill our operational requirement of purchasing, storing and selling home heating oil and vehicle fuel, while losing the mitigating
benefits of economic hedges with a failed counterparty. If one of our insurance carriers were to fail, our liquidity, results of operations and financial
condition could be materially adversely impacted, as we would have to fund any catastrophic loss. If our weather hedge counterparty were to fail, we would
lose the protection of our weather hedge contract. Currently, we have outstanding derivative instruments with the following counterparties: Bank of
America, N.A., Bank of Montreal, Cargill, Inc., Citibank, N.A., JPMorgan Chase Bank, N.A., Key Bank, N.A., Toronto-Dominion Bank and Wells Fargo
Bank, N.A. Our primary insurance carriers are American International Group, Woodbury Insurance Co., Inc. (our captive insurance subsidiary), and
Munich Re Trading LLC., which is our weather hedge counterparty.
Risks Related to Our Legal and Environmental Activities
We are subject to operating and litigation risks that could adversely affect our operating results whether or not covered by insurance.
Our operations are subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing
customers with our products such as natural disasters, adverse weather, accidents, fires, explosions, hazardous material releases, mechanical failures and
other events beyond our control. If any of these events were to occur, we could incur substantial losses because of personal injury or loss of life, severe
damage to and destruction of property and equipment, and pollution or other environmental damage resulting in curtailment or suspension of our related
operations. As a result, we may be a defendant in legal proceedings and litigation arising in the ordinary course of business. The Company records a
liability when it is probable that a loss has been incurred and the amount is reasonably estimable.
As we self-insure workers’ compensation, automobile and general liability claims up to pre-established limits, we establish liabilities based upon
expectations as to what our ultimate liability will be for claims based on our historical factors. We evaluate on an annual basis the potential for changes in
loss estimates with the support of qualified actuaries. As of September 30, 2021, we had approximately $80.6 million of insurance liabilities. Other than
matters for which we self-insure, we maintain insurance policies with insurers in amounts and with coverage and deductibles that we believe are reasonable
and prudent.
However, there can be no assurance that the ultimate settlement of these claims will not differ materially from the assumptions used to calculate the
liabilities or that the insurance we maintain will be adequate to protect us from all material expenses related to potential future claims for remediation costs
and personal and property damage or that these levels of insurance will be available in the future at economical prices, any of which could have a material
effect on our results of operations. Further, certain types of claims may be excluded from our insurance coverage. If
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we were to incur substantial liability and the damages are not covered by insurance or are in excess of policy limits, or if we incur liability at a time when
we are not able to obtain liability insurance, then our business, results of operations and financial condition could be materially adversely affected.
Our captive insurance company may not bring the benefits we expect.
Beginning October 1, 2016, we have elected to insure through a wholly-owned captive insurance company, Woodbury Insurance Co., Inc., certain
self-insured or deductible amounts. We also continue to maintain our normal, historical, insurance policies with third party insurers. In addition to certain
business and operating benefits of having a captive insurance company, we expect to receive certain cash flow benefits related to the timing of the tax
deduction related to these claims. Such expected cash tax timing benefits related to coverage provided by Woodbury Insurance Co., Inc. may not
materialize, or any cash tax savings may not be as much as anticipated.
Recent New York legislation has the potential to significantly negatively impact the Company’s New York operations.
On July 18, 2019, the State of New York passed the Climate Leadership and Community Protection Act (“CLCPA”). Among other things, the
CLCPA sets out a series of emissions reduction, renewable energy, and energy storage goals to significantly reduce the use of carbon-based fossil fuels and
eventually achieve net zero greenhouse gas (“GHG”) emissions in the state. On August 14, 2020, the New York Department of Environmental
Conservation released proposed regulations to limit statewide GHG emissions as a percentage of 1990 emissions to 60% by 2030 and to 15% by
2050. Within four years after the effective date (by July 2023), the New York Department of Environmental Conservation must adopt regulations that, in
part, include measures to reduce GHG emissions from sources that have a cumulatively significant impact on statewide GHG emissions. Certain measures,
such as reducing GHG emissions from fossil fuel-burning vehicles, boilers and furnaces, if adopted, could significantly negatively impact the Company’s
New York State operations, which constitute a material portion of the Company’s business. Other states in which the Company operates and that are
material to the Company’s operations have adopted similar GHG laws or have otherwise announced GHG reduction targets. However, whether and in what
manner the CLCPA or other states’ GHG laws or targets could impact the Company remains uncertain at this time.
Our results of operations and financial condition may be adversely affected by governmental regulation and associated environmental and
regulatory costs.
Our business is subject to a wide range of federal, state and local laws and regulations related to environmental and other matters. Such laws and
regulations have become increasingly stringent over time. Some state and local governments have enacted or are attempting to enact regulations and
incentive programs encouraging the phase-out of the products that we sell in favor of products using electricity or other types of fuels, such as natural gas.
We may experience increased costs due to stricter pollution control requirements or liabilities resulting from noncompliance with operating or other
regulatory permits. New regulations, such as those relating to underground storage, transportation, and delivery of the products that we sell, might
adversely impact operations or make them more costly. In addition, there are environmental risks inherently associated with home heating oil operations,
such as the risks of accidental releases or spills. We have incurred and continue to incur costs to remediate soil and groundwater contamination at some of
our locations. We cannot be sure that we have identified all such contamination, that we know the full extent of our obligations with respect to
contamination of which we are aware, or that we will not become responsible for additional contamination not yet discovered. It is possible that material
costs and liabilities will be incurred, including those relating to claims for damages to property and persons and the environment.
There is increasing attention in the United States and worldwide concerning the issue of climate change and the effect of GHG emissions, in
particular from the combustion of fossil fuels. Federal, regional and state regulatory authorities in many jurisdictions have begun taking steps to regulate
GHG emissions. For example, as discussed above under “Risk Factor - Recent New York legislation has the potential to significantly negatively impact the
Company’s New York operations,” the State of New York passed the CLCPA and other states have passed similar laws or have otherwise announced GHG
reduction targets. Additionally, in October 2015, the United States Environmental Protection Agency (“EPA”) under President Obama published the Clean
Power Plan for the regulation of GHG emissions associated with the energy sector. Under President Trump, the EPA repealed the Clean Power Plan and
issued the Affordable Clean Energy (“ACE”) Rule which, if implemented, would have resulted in
21
significantly less GHG reductions than would have been the case under the Clean Power Plan. On January 19, 2021, the U.S. Court of Appeals for the
District of Columbia vacated the ACE Rule. The repealed Clean Power Plan and vacated ACE Rule have not been replaced. It is likely, however, that any
future regulatory program that caps emissions or imposes a carbon tax will increase costs for us and our customers, which could lead to increased
conservation or customers seeking lower cost alternatives. We cannot yet estimate the compliance costs or business impact of potential national, regional or
state GHG emissions reduction legislation, regulations or initiatives, since many such programs and proposals are still in development.
Our operations would be adversely affected if service at our third-party terminals or on the common carrier pipelines used is interrupted.
The products that we sell are transported in either barge, pipeline or in truckload quantities to third-party terminals where we have contracts to
temporarily store our products. Any significant interruption in the service of these third-party terminals or on the common carrier pipelines used would
adversely affect our ability to obtain product.
We depend on the use of information technology systems that have been and may in the future be a target of cyber-attacks.
We rely on multiple information technology systems and networks that are maintained internally and by third-party vendors, and their failure or
breach could significantly impede operations. In addition, our systems and networks, as well as those of our vendors, banks and counterparties, may receive
and store personal or proprietary information in connection with human resources operations, customer offerings, and other aspects of our business. A
cyber-attack or material network breach in the security of these systems could include the exfiltration, or other unauthorized access or disclosure, of
proprietary information or employee and customer information, as well as disrupt our operations or damage our information technology infrastructure or
those of third parties.
For example, in July 2021, we detected a security incident that resulted in the encryption of certain of our information technology systems.
Promptly upon discovery of the incident, we launched an investigation with the assistance of an outside cybersecurity firm, notified law enforcement, and
took steps to address the incident and restore full operations. Although our investigation of the incident is ongoing, at this time we do not believe any
personal information belonging to customers was involved. However, we believe that an unauthorized third party exfiltrated and/or accessed certain
employee personal identifying information (“PII”) and/or protected health information (“PHI”) relating to employee health insurance plans and human
resources information, residing on some of the affected systems. We have since restored full operational capacity and were able to continue to serve our
customers without interruption. We are in the process of evaluating our existing information security measures and determining whether or where they can
be strengthened. Currently, we do not anticipate that this incident will have a material adverse effect on our business, operations or financial
results. However, we cannot be certain that that similar cyber-attacks will not occur in the future.
Cyber-attacks are increasing in their frequency, levels of persistence, and sophistication and intensity. Furthermore, because the techniques used to
obtain unauthorized access to, or to disrupt, information technology systems change frequently, we may be unable to anticipate these techniques or
implement security measures that would prevent them. We may also experience security breaches that may remain undetected for an extended period. If
another cyber-attack were to occur and cause interruptions in our operations, it could have a material adverse effect on our revenues and increase our
operating and capital costs, which could reduce the amount of cash otherwise available for distribution. To the extent that a future cyber-attack, security
breach or other such disruption results in a loss or damage to the Company’s data, or the disclosure of PII, PHI or other personal or proprietary information,
including customer or employee information, it could cause significant damage to the Company’s reputation, affect relationships with its customers,
vendors and employees, lead to claims against the Company, and ultimately harm our business. In addition, we may be required to incur additional costs to
mitigate, remediate and protect against damage caused by cyber-attacks, security breaches or other such disruptions in the future. We may pay significantly
higher insurance premiums to maintain cyber insurance coverage, and even if we are able to maintain cyber insurance coverage, it may not be sufficient in
amounts and scope to cover all harm sustained by the Company in any future cyber-attack or other data security incident.
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Changes in tax laws or regulations may have a material adverse effect on our business, cash flow, financial condition or results of operations.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our
business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified
or applied adversely to us. For example, significant changes to the U.S. tax laws have been proposed, including, among others, an increase in the corporate
tax rate and the imposition of an excise tax on the fair market value of stock that is repurchased by certain corporations. Changes to existing tax laws or the
enactment of future reform legislation could have a material impact on our financial condition, results of operations and ability to pay distributions to our
unitholders. It cannot be predicted whether or when tax laws, statutes, rules, regulations or ordinances may be enacted, issued, or amended that could
materially and adversely impact our financial position, results of operations, or cash flows.
Risks Related to People and Competition
Conflicts of interest have arisen and could arise in the future.
Conflicts of interest have arisen and could arise in the future as a result of relationships between the general partner and its affiliates, on the one
hand, and us or any of our limited partners, on the other hand. As a result of these conflicts the general partner may favor its own interests and those of its
affiliates over the interests of the unitholders. The nature of these conflicts is ongoing and includes the following considerations:
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The general partner’s affiliates are not prohibited from engaging in other business or activities, including direct competition with us.
The general partner determines the amount and timing of asset purchases and sales, capital expenditures, distributions to unitholders, unit
repurchases, borrowings and reserves, each of which can impact the amount of cash, if any, available for distribution to unitholders, and
available to pay principal and interest on debt and the amount of incentive distributions payable in respect of the general partner units.
The general partner controls the enforcement of obligations owed to us by the general partner.
The general partner decides whether to retain its counsel or engage separate counsel to perform services for us.
In some instances the general partner may borrow funds in order to permit the payment of distributions to unitholders.
The general partner may limit its liability and reduce its fiduciary duties, while also restricting the remedies available to unitholders for
actions that might, without limitations, constitute breaches of fiduciary duty.
Unitholders are deemed to have consented to some actions and conflicts of interest that might otherwise be deemed a breach of fiduciary or
other duties under applicable state law.
The general partner is allowed to take into account the interests of parties in addition to the Company in resolving conflicts of interest,
thereby limiting its fiduciary duty to the unitholders.
The general partner determines whether to issue additional units or other of our securities.
The general partner determines which costs are reimbursable by us.
The general partner is not restricted from causing us to pay the general partner or its affiliates for any services rendered on terms that are fair
and reasonable to us or entering into additional contractual arrangements with any of these entities on our behalf.
Our inability to identify qualified individuals for our workforce could slow our growth and adversely impact our ability to operate our business
Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees to meet the needs of our
business. A number of factors may adversely affect the workforce available to us or increase labor costs, including high employment levels, federal
unemployment subsidies, including
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unemployment benefits offered in response to the COVID-19 pandemic, and other government regulations. We have experienced and may continue to
experience shortages of qualified individuals to fill these positions. Competition for qualified employees have caused us and may continue to cause us to
pay higher wages and provide greater benefits. We place a heavy emphasis on the qualification and training of our personnel and spend a significant
amount of time and money on training our team members. Any inability to recruit and retain qualified individuals may result in higher turnover and
increased labor costs, and could compromise the quality of our service, could have a material adverse effect on our business, financial condition and results
of operations. The COVID-19 pandemic has exacerbated staffing complexities for us. The COVID-19 pandemic has also resulted in aggressive competition
for talent, wage inflation and pressure to improve benefits and workplace conditions to remain competitive. Maintaining adequate staffing in our customer-
facing departments and hiring and training staff has been significantly complicated by the impacts of the COVID-19 pandemic on our business. Our
existing wages and benefits programs, combined with the challenging conditions due to the COVID-19 pandemic and the highly competitive wage pressure
resulting from the labor shortage, may be insufficient to attract and retain the best talent. Our failure to recruit and retain employees in a timely manner or
higher team member turnover levels all could affect our ability to service our customers leading to customer attrition, and we may experience higher than
projected labor costs. In addition, we deliver our products primarily by truck. We compete with other entities for drivers and service technicians’ labor,
including entities that do not have seasonal businesses such as ours. The shortages of drivers, primarily as a result of the COVID-19 pandemic, has caused
an increase in the cost of transportation for us. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by COVID-19
or as a result of general macroeconomic factors, could have a material adverse impact on the company’s operations, results of operations, liquidity or cash
flows.
A substantial portion of our workforce is unionized, and we may face labor actions that could disrupt our operations or lead to higher labor costs
and adversely affect our business.
As of September 30, 2021, approximately 44% of our employees were covered under 58 different collective bargaining agreements. As a result, we
are usually involved in union negotiations with several local bargaining units at any given time. There can be no assurance that we will be able to negotiate
the terms of any expired or expiring agreement on terms satisfactory to us. Although we consider our relations with our employees to be generally
satisfactory, we may experience strikes, work stoppages or slowdowns in the future. If our unionized workers were to engage in a strike, work stoppage or
other slowdown, we could experience a significant disruption of our operations, which could have a material adverse effect on our business, results of
operations and financial condition. Moreover, our non-union employees may become subject to labor organizing efforts. If any of our current non-union
facilities were to unionize, we could incur increased risk of work stoppages and potentially higher labor costs.
Risks Related to Ownership of Our Common Units
Cash distributions (if any) are not guaranteed and may fluctuate with performance and reserve requirements.
Distributions of available cash by us to unitholders will depend on the amount of cash generated, and distributions may fluctuate based on our
performance. The actual amount of cash that is available will depend upon numerous factors, including:
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profitability of operations,
required principal and interest payments on debt or debt prepayments,
debt covenants,
margin account requirements,
cost of acquisitions,
issuance of debt and equity securities,
fluctuations in working capital,
capital expenditures,
24
•
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units repurchased,
adjustments in reserves,
prevailing economic conditions,
financial, business and other factors,
increased pension funding requirements,
results of potential adverse litigation, and
the amount of cash taxes we have to pay in Federal, State and local corporate income and franchise taxes.
Our Credit Agreement imposes restrictions on our ability to pay distributions to unitholders, including the need to maintain certain covenants. (See
the fifth amended and restated credit agreement and Note 13 of the Notes to the Consolidated Financial Statements—Long-Term Debt and Bank Facility
Borrowings).
If we fail to maintain an effective system of internal controls, then we may not be able to accurately report our financial results or prevent fraud.
As a result, current and potential unitholders could lose confidence in our financial reporting, which would harm our business and the trading
price of our common units.
Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. We
may experience difficulties in implementing effective internal controls as part of our integration of acquisitions from private companies, which are not
subject to the internal control requirements imposed on public companies. If we are unable to maintain adequate controls over our financial processes and
reporting in the future or if the businesses we acquire have ineffective internal controls, our operating results could be harmed or we may fail to meet our
reporting obligations. Ineffective internal controls over financial reporting could cause our unitholders to lose confidence in our reported financial
information, which would likely have a negative effect on the trading price of our common units.
Risks Related to Our Indebtedness
Our substantial debt and other financial obligations could impair our financial condition and our ability to obtain additional financing and have a
material adverse effect on us if we fail to meet our financial and other obligations.
At September 30, 2021, we had outstanding under our fifth amended and restated revolving credit facility agreement a $110.5 million term loan,
$8.6 million under the revolver portion of our fifth amended and restated revolving credit facility agreement, $3.1 million of letters of credit, no hedge
positions, and our availability was $171.5 million. In December 2019, the Company refinanced its five-year term loan and the revolving credit facility with
the execution of the fifth amended and restated revolving credit facility agreement, which had the effect of increasing the amount due under our term loan
to $130 million, correspondingly reduced the borrowings under the revolver portion of the fourth amended and restated revolving credit facility agreement
and extended the term of the facility to December 2024. (See the fifth amended and restated credit agreement and Note 13 of the Notes to the Consolidated
Financial Statements—Long-Term Debt and Bank Facility Borrowings). Exclusive of the term loan, during the last three fiscal years we have utilized as
much as $147.4 million of our Credit Agreement in borrowings, letters of credit and hedging reserve. Our substantial indebtedness and other financial
obligations could:
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impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, unit repurchases or
general partnership purposes;
have a material adverse effect on us if we fail to comply with financial and affirmative and restrictive covenants in our debt agreements and
an event of default occurs that is not cured or waived;
require us to dedicate a substantial portion of our cash flow for principal and interest payments on our indebtedness and other financial
obligations, thereby reducing the availability of our cash flow to fund working capital and capital expenditures;
expose us to interest rate risk because certain of our borrowings are at variable rates of interest;
25
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limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
place us at a competitive disadvantage compared to our competitors that have proportionally less debt.
If we are unable to meet our debt service obligations and other financial obligations, we could be forced to restructure or refinance our
indebtedness and other financial transactions, seek additional equity capital or sell our assets. We might then be unable to obtain such financing or capital
or sell our assets on satisfactory terms, if at all.
We are not required to accumulate cash for the purpose of meeting our future obligations to our lenders, which may limit the cash available to
service the final payment due on the term loan outstanding under our Credit Agreement.
Subject to the limitations on restricted payments that are contained in our Credit Agreement, we are not required to accumulate cash for the purpose
of meeting our future obligations to our lenders. As a result, we may be required to refinance the final payment of our term loan. Our ability to refinance
the term loan will depend upon our future results of operation and financial condition as well as developments in the capital markets. Our general partner
will determine the future use of our cash resources and has broad discretion in determining such uses and in establishing reserves for such uses, which may
include but are not limited to:
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complying with the terms of any of our agreements or obligations;
providing for distributions of cash to our unitholders in accordance with the requirements of our Partnership Agreement;
providing for future capital expenditures and other payments deemed by our general partner to be necessary or advisable, including to make
acquisitions; and
repurchasing common units.
Depending on the timing and amount of our use of cash, this could significantly reduce the cash available to us in subsequent periods to make
payments on borrowings under our Credit Agreement.
Restrictive covenants in our Credit Agreement may reduce our operating flexibility.
Our Credit Agreement contains various covenants that limit our ability and the ability of our subsidiaries to, among other things:
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incur indebtedness;
make distributions to our unitholders;
purchase or redeem our outstanding equity interests or subordinated indebtedness;
make investments;
create liens;
sell assets;
engage in transactions with affiliates;
restrict the ability of our subsidiaries to make payments, loans, guarantees and transfers of assets or interests in assets;
engage in sale-leaseback transactions;
effect a merger or consolidation with or into other companies, or a sale of all or substantially all of our properties or assets; and
engage in other lines of business.
These restrictions could limit our ability to obtain future financings, make capital expenditures, withstand a future downturn in our business or the
economy in general, conduct operations or otherwise take advantage of
26
business opportunities that may arise. Our Credit Agreement also requires us to maintain specified financial ratios and satisfy other financial conditions.
Our ability to meet those financial ratios and conditions can be affected by events beyond their control, such as weather conditions and general economic
conditions. Accordingly, we may be unable to meet those ratios and conditions.
Any breach of any of these covenants, failure to meet any of these ratios or conditions, or occurrence of a change of control would result in a
default under the terms of the relevant indebtedness or other financial obligations to become immediately due and payable. If we were unable to repay
those amounts, the lenders could initiate a bankruptcy proceeding or liquidation proceeding or proceed against the collateral, if any. If the lenders of our
indebtedness or other financial obligations accelerate the repayment of borrowings or other amounts owed, we may not have sufficient assets to repay our
indebtedness or other financial obligations.
Under our Credit Agreement, the occurrence of a “change of control” is considered a default. We may be unable to repay borrowings under our
Credit Agreement if the indebtedness outstanding thereunder is accelerated following a change of control.
In the event of a change in control, we may not have the financial resources to repay borrowings under our Credit Agreement and may be unable to
satisfy our obligations unless we are able to refinance or obtain waivers under our other indebtedness.
General Risk Factors
Disruptions in our supply chain and other factors affecting the delivery of our products and services could adversely impact our business.
A disruption within our supply chain network could adversely affect our ability to deliver our products and services in a timely manner, cause an
increase in wholesale prices and a decrease in supply, lost sales, customer attrition, increased supply chain costs, or damage to our reputation. Such
disruptions may result from weather-related events; natural disasters; international trade disputes or trade policy changes or restrictions; tariffs or import-
related taxes; third-party strikes, lock-outs, work stoppages or slowdowns; shortages of supply chain labor, including truck drivers; shipping capacity
constraints, including shortages of related equipment; third-party contract disputes; supply or shipping interruptions or costs; military conflicts; acts of
terrorism; public health issues, including pandemics or quarantines (such as the COVID-19 pandemic) and related shut-downs, re-openings, or other
actions by the government; civil unrest; or other factors beyond our control. Recently, U.S. ports, including those located on the East coast where we
receive shipments of products, have been impacted by capacity constraints, port congestion and delays, periodic labor disputes, security issues, weather-
related events, and natural disasters, which have been further exacerbated by the pandemic. Disruptions to our supply chain due to any of the factors listed
above could negatively impact our financial performance or financial condition.
Hurricanes and other natural disasters and extreme weather conditions could also cause disruptions in the power grid, which could prevent our
customers from operating their home heating oil systems, thereby reducing our sales. For example, on October 29, 2012, storm Sandy made landfall in our
service area, resulting in widespread power outages that affected a number of our customers. Deliveries of home heating oil and propane were less than
expected for certain of our customers who were without power for several weeks subsequent to storm Sandy.
Continuing inflation may hurt our sales margins and profitability.
Cost inflation including significant increases in wholesale product costs, labor rates, and domestic transportation costs have and could continue to
impact profitability. Continued imbalances between supply and demand for these resources may continue to exert upward pressure on costs. Our ability to
recover these cost increases through price increases may continue to lag the cost increases, resulting in downward pressure on our sales margins.
Energy efficiency and new technology may reduce the demand for our products and adversely affect our operating results.
Increased conservation and technological advances, including installation of improved insulation and the development of more efficient furnaces
and other heating devices, have adversely affected the demand for our
27
products by retail customers. Future conservation measures or technological advances in heating, conservation, energy generation or other devices might
reduce demand and adversely affect our operating results.
Economic conditions could adversely affect our results of operations and financial condition.
Uncertainty about economic conditions poses a risk as our customers may reduce or postpone spending in response to tighter credit, negative
financial news and/or declines in income or asset values, which could have a material negative effect on the demand for our equipment and services and
could lead to increased conservation, as we have seen certain of our customers seek lower cost providers. Inflationary economic conditions generally affect
us by increasing the cost of employee wages and benefits, transportation costs, product and service cost, credit card processing fees and bad debt from
higher selling prices, and borrowings under our credit facility. Any increase in existing customers or potential new customers seeking lower cost providers
and/or increase in our rejection rate of potential accounts because of credit considerations could increase our overall rate of net customer attrition. In
addition, recessionary economic conditions could negatively impact the spending and financial viability of our customers; particularly our commercial
motor fuel customers. As a result, we could experience an increase in bad debts from financially distressed customers, which would have a negative effect
on our liquidity, results of operations and financial condition.
The risk of global terrorism and political unrest may adversely affect the economy and the price and availability of the products that we sell and
have a material adverse effect on our business, financial condition and results of operations.
Terrorist attacks, political unrest and war may adversely impact the price and availability of the products that we sell, our results of operations, our
ability to raise capital and our future growth. The impact that the foregoing may have on our industry in general, and on our business in particular, is not
known at this time. An act of terror could result in disruptions of crude oil supplies, markets and facilities, and the source of the products that we sell could
be direct or indirect targets. Terrorist activity may also hinder our ability to transport our products if our normal means of transportation become damaged
as a result of an attack. Instability in the financial markets as a result of terrorism could also affect our ability to raise capital. Terrorist activity could likely
lead to increased volatility in the prices of our products.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
PROPERTIES
We currently provide services to our customers in the United States in fourteen states and the District of Columbia, ranging from Maine to
Maryland from 41 principal operating locations and 77 depots, 51 of which are owned and 67 of which are leased. As of September 30, 2021, we had a
fleet of 1,201 truck and transport vehicles, the majority of which were owned, 1,246 service and 390 support vehicles, the majority of which were leased.
Our obligations under our Credit Agreement are secured by liens and mortgages on substantially all of the Company’s and subsidiaries’ real and personal
property.
ITEM 3.
LEGAL PROCEEDINGS—LITIGATION
We are involved from time to time in litigation incidental to the conduct of our business, but we are not currently a party to any material lawsuit or
proceeding.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5.
MARKET FOR REGISTRANT’S UNITS AND RELATED MATTERS
The common units, representing limited partner interests in Star, are listed and traded on the New York Stock Exchange, Inc. (“NYSE”) under the
symbol “SGU.”
The following tables set forth the range of the daily high and low sales prices per common unit and the cash distributions declared on each unit for
PART II
the periods indicated.
Quarter Ended
December 31,
March 31,
June 30,
September 30,
SGU – Common Unit Price Range
Low
High
Distributions Declared
per Unit
Fiscal
Year
2021
Fiscal
Year
2020
Fiscal
Year
2021
Fiscal
Year
2020
Fiscal
Year
2021
Fiscal
Year
2020
$
$
$
$
9.98 $
10.80 $
12.03 $
11.89 $
9.79 $
9.61 $
8.97 $
9.95 $
9.07 $
9.31 $
10.10 $
9.58 $
8.91 $ 0.1325 $ 0.1250
6.11 $ 0.1325 $ 0.1250
7.00 $ 0.1425 $ 0.1325
8.38 $ 0.1425 $ 0.1325
As of November 30, 2021, there were approximately 204 holders of record of common units.
There is no established public trading market for the Company’s 0.3 million general partner units.
Distribution Provisions
We are required to make distributions in an amount equal to our Available Cash, as defined in our Partnership Agreement, no more than 45 days
after the end of each fiscal quarter, to holders of record on the applicable record dates. Available Cash, as defined in our Partnership Agreement, generally
means all cash on hand at the end of the relevant fiscal quarter less the amount of cash reserves established by the Board of Directors of our general partner
in its reasonable discretion for future cash requirements. These reserves are established for the proper conduct of our business (including reserves for future
capital expenditures) for minimum quarterly distributions during the next four quarters and to comply with applicable laws and the terms of any debt
agreements or other agreement to which we are subject. The Board of Directors of our general partner reviews the level of Available Cash each quarter
based upon information provided by management.
According to the terms of our Partnership Agreement, minimum quarterly distributions on the common units accrue at the rate of $0.0675 per
quarter ($0.27 on an annual basis). The information concerning restrictions on distributions required by Item 5 of this Report is incorporated by reference to
Note 4 to the Company’s Consolidated Financial Statements - Quarterly Distribution of Available Cash. The Credit Agreement imposes certain restrictions
on our ability to pay distributions to unitholders. In order to pay any distributions to unitholders or repurchase Common Units, the Company must maintain
Availability (as defined in the 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. (See Note 13 of the Notes to the Consolidated Financial Statements—Long-Term Debt and Bank Facility Borrowings).
On October 21, 2021, we declared a quarterly distribution of $0.1425 per unit, or $0.57 per unit on an annualized basis, on all Common Units with
respect to the fourth quarter of fiscal 2021, paid on November 9, 2021, to holders of record on November 1, 2021. The amount of distributions in excess of
the minimum quarterly distribution of $0.0675, were distributed in accordance with our Partnership Agreement, subject to management incentive
compensation plan. As a result, $5.5 million was paid to the Common Unit holders, $0.3 million to the general partner unit holders (including $0.2 million
of incentive distribution as provided in our Partnership Agreement) and $0.2 million to management pursuant to the management incentive compensation
plan which provides for certain members of management to receive incentive distributions that would otherwise be payable to the General Partner.
29
Common Unit Repurchase Plans and Retirement
Note 5 to the Consolidated Financial Statements concerning the Company’s repurchase of Common Units during the fiscal year ended September
30, 2021 is incorporated into this Item 5 by reference.
ITEM 6.
(RESERVED)
30
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statement Regarding Forward-Looking Disclosure
This Annual Report on Form 10-K (this “Report”) includes “forward-looking statements” which represent our expectations or beliefs concerning
future events that involve risks and uncertainties, including those associated with the severity and duration of the novel coronavirus, or COVID-19,
pandemic, the pandemic’s impact on the U.S. and global economies, the timing, scope and effectiveness of federal, state and local governmental responses
to the pandemic, the effect of weather conditions on our financial performance, the price and supply of the products that we sell, the consumption patterns
of our customers, our ability to obtain satisfactory gross profit margins, our ability to obtain new customers and retain existing customers, our ability to
make strategic acquisitions, the impact of litigation, our ability to contract for our current and future supply needs, natural gas conversions, future union
relations and the outcome of current and future union negotiations, the impact of current and future governmental regulations, including climate change,
environmental, health, and safety regulations, the ability to attract and retain employees, customer credit worthiness, counterparty credit worthiness,
marketing plans, cyber-attacks, inflation, global supply chain issues, labor shortages, general economic conditions and new technology. All statements
other than statements of historical facts included in this Report including, without limitation, the statements under “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and elsewhere herein, are forward-looking statements. Without limiting the foregoing, the words
“believe,” “anticipate,” “plan,” “expect,” “seek,” “estimate,” and similar expressions are intended to identify forward-looking statements. Although we
believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be
correct and actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but
are not limited to, those set forth in this Report under the heading “Risk Factors” and “Business Strategy.” Important factors that could cause actual results
to differ materially from our expectations (“Cautionary Statements”) are disclosed in this Report. Currently, one of the most significant factors, however, is
the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows
and performance of the Company, its customers and counterparties, and the global economy and financial markets. The extent to which COVID-19 impacts
us and our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope,
severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the direct and indirect economic effects of the
pandemic and containment measures, among others. All subsequent written and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. Unless otherwise required by law, we undertake no obligation to
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Report.
Impact of COVID 19 - A Global Pandemic on our Operations and Outlook
In December 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”). On March 11, 2020, the World Health Organization
characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. The United States declared a
national emergency concerning the outbreak, which adversely impacted global activity and contributed to significant declines and volatility in financial
markets. Public health and governmental authorities nationally and in affected regions have taken and continue to take extraordinary and wide-ranging
actions to contain and combat the outbreak and spread of COVID-19, including restrictions on travel and business operations, quarantines, and orders and
similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.
To date, we have not experienced any supply chain issues impacting our ability to deliver petroleum products to our customers. However, we have
experienced and may continue to see disruptions in the procurement of service and installation materials. Since March 2020, we have implemented various
measures in response to the COVID-19 pandemic, such as a majority of our office personnel working remotely. While these measures have not
significantly impacted our ability to serve our customers to date, these measures may become strained or result in service delays.
31
As a result of the COVID-19 pandemic, and in order to protect the safety and health of our workforce and our customers, we have expanded
certain employee benefit programs and will incur additional operating costs such as sanitizing our facilities, providing personal protective equipment for
our employees and providing IT infrastructure to allow many office, clerical, sales and customer service employees to work from home. At this time, we
expect the annual cost of these undertakings to be approximately $2.0 million.
The decline in economic activity impacted our motor fuels business in the third and fourth quarters of fiscal 2020 as well as the first and second
quarter of fiscal 2021. However, we did experience an increase in motor fuel volumes sold in the third and fourth quarter of fiscal 2021 compared to the
third and fourth quarter of fiscal 2020. While it has not yet materially impacted our ability to serve our customers, a combination of continued higher than
normal unemployment benefits and an increased desire of prospective employees to work from home has impacted our ability to fully staff our customer
service, sales and other functions. In addition, we expect that we will experience an increase in wage rates to fill these positions and we might need to
adjust the current wage rates of existing employees. We cannot predict how long this staffing issue will continue, but the shortage in conjunction with any
kind of spike in customer activity could cause unacceptable delays in response times and increase customer losses.
As of September 30, 2021, we had accounts receivable of $99.7 million, of which $60.9 million was due from residential customers and $38.8
million due from commercial customers. Our ability to borrow from our bank group is based in part on the aging of these accounts receivable. If past due
balances that do not meet the eligibility tests as found in our fifth amended and restated credit agreement increase from historic levels, our future ability to
borrow would be reduced.
The Company has taken advantage of certain tax and legislative actions which permitted the Company to defer certain calendar 2020 payroll tax
withholdings to calendar 2021 and 2022; approximately half of which were paid in fiscal 2021.
The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business
strategies and initiatives, will depend on future developments, including the duration and spread of COVID-19 and related restrictions on travel and general
mobility, the price of petroleum products and the timing, scope and effectiveness of federal, state and local governmental responses, all of which are
uncertain and cannot be predicted. An extended period of global supply chain and economic disruption caused by COVID-19 and its variants could
materially affect our business, results of operations, access to sources of liquidity and financial condition.
Impact on Liquidity of Increases and Decreases in Wholesale Product Cost
Our liquidity is adversely impacted in times of increasing wholesale product costs, as we must use more cash to fund our hedging requirements as
well as the increased levels of accounts receivable and inventory. This may result in higher interest expense as a result of increased working capital
borrowing to finance higher receivables and/or inventory balances. We may also incur higher bad debt expense and credit card processing costs as a result
of higher selling prices as well as higher vehicle fuel costs due to the increase in energy costs. While our liquidity is impacted by initial margin
requirements for new future positions used to hedge our inventory, it can also be adversely impacted by sudden and sharp decreases in wholesale product
costs, due to the increased margin requirements for futures contracts. Likewise, our liquidity and collateral requirements are impacted by the fluctuating
cost of options and swaps used to manage the market risks associated with our inventory and protected price customers.
32
Liquid Product Price Volatility
Volatility, which is reflected in the wholesale price of liquid products, including home heating oil, propane and motor fuels, has a larger impact on
our business when prices rise. Consumers are price sensitive to heating cost increases, which can lead to increased gross customer losses. As a commodity,
the price of home heating oil is generally impacted by many factors, including economic and geopolitical forces, and, most recently, the COVID-19
pandemic, and is closely linked to the price of diesel fuel. The volatility in the wholesale cost of diesel fuel as measured by the New York Mercantile
Exchange (“NYMEX”), for the fiscal years ending September 30, 2017, through 2021, on a quarterly basis, is illustrated in the following chart (price per
gallon):
Fiscal 2021 (a)
Fiscal 2020
Fiscal 2019
Fiscal 2018
Fiscal 2017
Quarter Ended
December 31
March 31
June 30
September 30
Low
High
High
High
Low
$ 1.08 $ 1.51 $ 1.86 $ 2.05 $ 1.66 $ 2.44 $ 1.74 $ 2.08 $ 1.39 $ 1.70
1.46 1.97 0.95 2.06 1.70 2.04 1.84 2.14 1.49 1.70
1.77 2.16 0.61 1.22 1.78 2.12 1.96 2.29 1.37 1.65
1.91 2.34 1.08 1.28 1.75 2.08 2.05 2.35 1.45 1.86
High
Low
Low
High
Low
a)
On November 30, 2021, the NYMEX ultra low sulfur diesel contract closed at $2.06 per gallon or $0.27 per gallon higher than the average of $1.79
in Fiscal 2021.
Income Taxes
Book versus Tax Deductions
The amount of cash flow generated in any given year depends upon a variety of factors including the amount of cash income taxes required, which
will increase as depreciation and amortization decreases. The amount of depreciation and amortization that we deduct for book (i.e., financial reporting)
purposes will differ from the amount that the Company can deduct for Federal tax purposes. The table below compares the estimated depreciation and
amortization for book purposes to the amount that we expect to deduct for Federal tax purposes, based on currently owned assets. While we file our tax
returns based on a calendar year, the amounts below are based on our September 30 fiscal year, and the tax amounts include any 100% bonus depreciation
available for fixed assets purchased. However, this table does not include any forecast of future annual capital purchases.
Estimated Depreciation and Amortization Expense
(in thousands) Fiscal Year
2021
2022
2023
2024
2025
2026
$
Book
Tax
34,457 $
31,246
27,198
22,632
17,998
14,086
39,473
22,606
20,820
20,111
18,967
18,142
Weather Hedge Contracts
Weather conditions have a significant impact on the demand for home heating oil and propane because certain customers depend on these products
principally for space heating purposes. Actual weather conditions may vary substantially from year to year, significantly affecting the Company’s financial
performance. To partially mitigate the adverse effect of warm weather on cash flow, we have used weather hedging contracts for a number of years with
several providers.
Under these contracts, we are entitled to a payment if the total number of degree days within the hedge period is less than the applicable “Payment
Thresholds,” or strikes. The hedge period runs from November 1 through March 31, taken as a whole, for each respective fiscal year. For fiscal 2021 we
recorded a $3.4 million benefit, and for fiscal 2020 we recorded a benefit of $10.1 million.
33
For fiscal 2022, we entered into weather hedging contracts under which we are entitled to a payment capped at $12.5 million if degree days are less
than the Payment Threshold and we are obligated to make an annual payment capped at $5.0 million if degree days exceed the Payment Threshold. The
hedge period runs from November 1, 2021 through March 31, 2022 taken as a whole.
Per Gallon Gross Profit Margins
We believe home heating oil and propane margins should be evaluated on a cents per gallon basis (before the effects of increases or decreases in
the fair value of derivative instruments), as we believe that such per gallon margins are best at showing profit trends in the underlying business, without the
impact of non-cash changes in the market value of hedges before the settlement of the underlying transaction.
A significant portion of our home heating oil volume is sold to individual customers under an arrangement pre-establishing a ceiling price or fixed
price for home heating oil over a set period of time, generally twelve to twenty-four months (“price-protected” customers). When these price-protected
customers agree to purchase home heating oil from us for the next heating season, we purchase option contracts, swaps and futures contracts for a
substantial majority of the heating oil that we expect to sell to these customers. The amount of home heating oil volume that we hedge per price-protected
customer is based upon the estimated fuel consumption per average customer per month. In the event that the actual usage exceeds the amount of the
hedged volume on a monthly basis, we may be required to obtain additional volume at unfavorable costs. In addition, should actual usage in any month be
less than the hedged volume, our hedging costs and losses could be greater, thus reducing expected margins.
Derivatives
FASB ASC 815-10-05 Derivatives and Hedging requires that derivative instruments be recorded at fair value and included in the consolidated
balance sheet as assets or liabilities. To the extent our interest rate derivative instruments designated as cash flow hedges are effective, as defined under this
guidance, changes in fair value are recognized in other comprehensive income until the forecasted hedged item is recognized in earnings. We have elected
not to designate our commodity derivative instruments as hedging instruments under this guidance and, as a result, the changes in fair value of the
derivative instruments are recognized in our statement of operations. Therefore, we experience volatility in earnings as outstanding derivative instruments
are marked to market and non-cash gains and losses are recorded prior to the sale of the commodity to the customer. The volatility in any given period
related to unrealized non-cash gains or losses on derivative instruments can be significant to our overall results. However, we ultimately expect those gains
and losses to be offset by the cost of product when purchased.
Customer Attrition
We measure net customer attrition on an ongoing basis for our full service residential and commercial home heating oil and propane customers. Net
customer attrition is the difference between gross customer losses and customers added through marketing efforts. Customers added through acquisitions
are not included in the calculation of gross customer gains. However, additional customers that are obtained through marketing efforts or lost at newly
acquired businesses are included in these calculations. Customer attrition percentage calculations include customers added through acquisitions in the
denominators of the calculations on a weighted average basis. Gross customer losses are the result of a number of factors, including price competition,
move-outs, credit losses, conversions to natural gas and service disruptions. When a customer moves out of an existing home, we count the “move out” as a
loss, and if we are successful in signing up the new homeowner, the “move in” is treated as a gain. The economic impact of COVID-19 could increase
future attrition due to higher losses from credit related issues.
34
Customer gains and losses of home heating oil and propane customers
2021
Net
Fiscal Year Ended
2020
Net
2019
Net
Gross Customer
Gains /
Gross Customer
Gains /
Gross Customer
Gains /
Gains
19,100
12,600
6,700
9,500
47,900
Losses
(Attrition)
19,900
17,800
12,300
14,900
64,900
(800)
(5,200)
(5,600)
(5,400)
(17,000)
Gains
23,900
12,600
8,000
10,700
55,200
Losses
(Attrition)
23,100
18,200
13,600
15,800
70,700
800
(5,600)
(5,600)
(5,100)
(15,500)
Gains
26,200
12,600
7,100
13,200
59,100
Losses
25,400
22,300
15,900
20,600
84,200
(Attrition)
800
(9,700)
(8,800)
(7,400)
(25,100)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Customer gains (attrition) as a percentage of home heating oil and propane customer base
2021
Gross Customer
Gains
Losses
Net
Gains /
(Attrition)
4.4%
2.9%
1.3%
2.1%
10.7%
4.6%
4.1%
2.6%
3.3%
14.6%
(0.2)%
(1.2)%
(1.3)%
(1.2)%
(3.9)%
Fiscal Year Ended
2020
Gross Customer
Gains
Losses
5.3%
2.8%
1.8%
2.3%
12.2%
5.1%
4.0%
3.0%
3.5%
15.6%
Net
Gains /
(Attrition)
2019
Gross Customer
Gains
Losses
Net
Gains /
(Attrition)
0.2%
(1.2)%
(1.2)%
(1.2)%
(3.4)%
5.8%
2.8%
1.6%
2.7%
12.9%
5.6%
5.0%
3.5%
4.2%
18.3%
0.2%
(2.2)%
(1.9)%
(1.5)%
(5.4)%
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
For fiscal 2021, the Company lost 17,000 accounts (net), or 3.9%, of its home heating oil and propane customer base, compared to 15,500 accounts
lost (net), or 3.4%, of its home heating oil and propane customer base, during fiscal 2020. Gross customer gains were 7,300 less than the prior year’s
comparable period, and gross customer losses were 5,800 accounts lower. The 1,500 account increase in net customer attrition was negatively impacted by
the sale of certain propane assets in October 2020, which generated approximately 1,100 accounts (net) through September 30, 2020 as compared to
approximately 100 accounts (net) in October 2020.
For fiscal 2020, the Company lost 15,500 accounts (net), or 3.4%, of its home heating oil and propane customer base, compared to 25,100 accounts
lost (net), or 5.4%, of its home heating oil and propane customer base, during fiscal 2019. The Company’s net customer attrition improved by 9,600
accounts. Gross customer gains were 3,900 less than the prior year’s comparable period, and gross customer losses were 13,500 accounts lower.
During fiscal 2021, we estimate that we lost (1.1%) of our home heating oil and propane accounts to natural gas conversions versus (1.1%) for
fiscal 2020 and (1.4%) for fiscal 2019. Losses to natural gas in our footprint for the heating oil and propane industry could be greater or less than the
Company’s estimates.
Acquisitions
The timing of acquisitions and the types of products sold by acquired companies impact year-over-year comparisons. During fiscal 2021 the
Company acquired two propane and three heating oil dealers. During fiscal 2020 the Company acquired two heating oil dealers. The following tables detail
the Company’s acquisition activity and the associated volume sold during the 12-month period prior to the date of acquisition.
35
(in thousands of gallons)
Fiscal 2021 Acquisitions
Acquisition Number
Month of Acquisition
Home Heating Oil and Propane
Motor Fuel and Other Petroleum
Products
Total
1
2
3
4
5
December
December
February
March
April
5,452
1,318
305
1,163
4,509
12,747
—
—
—
—
166
166
(in thousands of gallons)
Fiscal 2020 Acquisitions
Acquisition Number
Month of Acquisition
Home Heating Oil and Propane
Motor Fuel and Other Petroleum
Products
Total
1
2
October
July
Sale of Propane Assets
1,085
2,400
3,485
—
—
—
5,452
1,318
305
1,163
4,675
12,913
1,085
2,400
3,485
In October 2020 we sold propane assets, which included a customer list of approximately 12,300 customers for $7.0 million. The following table
details sales generated from the propane assets sold:
(in thousands)
Volume:
Propane
Sales:
Years Ended September 30,
2020
2019
2021
155
2,741
2,765
Petroleum Products
Installations and Services
Total Sales
$
$
334 $
68
402 $
5,906 $
1,224
7,130 $
6,377
1,540
7,917
Protected Price Account Renewals
A substantial majority of the Company’s price-protected customers have agreements with us that are subject to annual renewal in the period
between April and November of each fiscal year. If a significant number of these customers elect not to renew their price-protected agreements with us and
do not continue as our customers under a variable price-plan, the Company’s near term profitability, liquidity and cash flow will be adversely impacted. As
of November 30, 2021, the wholesale cost of home heating oil as measured by the New York Mercantile Exchange was $2.06 per gallon, approximately
$0.69 per gallon higher than at November 30, 2020. Based on these recent prices, our price-protected customers will be offered renewal contracts at
significantly higher prices than last year which, may adversely impact the acceptance rate of these renewals.
Consolidated Results of Operations
The following is a discussion of the consolidated results of operations of the Company and its subsidiaries and should be read in conjunction with
the historical financial and operating data and Notes thereto included elsewhere in this Annual Report.
36
Fiscal Year Ended September 30, 2021
Compared to Fiscal Year Ended September 30, 2020
Volume
For fiscal 2021, the retail volume of home heating oil and propane sold decreased by 7.7 million gallons, or 2.4%, to 305.9 million gallons,
compared to 313.6 million gallons for fiscal 2020. For those locations where we had existing operations during both periods, which we sometimes refer to
as the “base business” (i.e., excluding acquisitions), temperatures (measured on a heating degree day basis) for fiscal 2021 were 1.1% warmer than fiscal
2020 and 10.7% warmer than normal, as reported by NOAA. For fiscal 2021, net customer attrition for the base business was 3.7%. The impact of fuel
conservation, along with any period-to-period differences in delivery scheduling, the timing of accounts added or lost during the fiscal years, equipment
efficiency, and other volume variances not otherwise described, are included in the chart below under the heading “Other.” An analysis of the change in the
retail volume of home heating oil and propane, which is based on management’s estimates, sampling, and other mathematical calculations and certain
assumptions, is found below:
(in millions of gallons)
Volume - Fiscal 2020
Net customer attrition
Impact of warmer temperatures
Acquisitions
Sale of certain propane assets
Other
Change
Volume - Fiscal 2021
Heating Oil
and Propane
313.6
(15.1)
(3.6)
8.1
(2.6)
5.5
(7.7)
305.9
The following chart sets forth the percentage by volume of total home heating oil sold to residential variable-price customers, residential price-
protected customers, and commercial/industrial/other customers for fiscal 2021 compared to fiscal 2020:
Customers
Residential Variable
Residential Price-Protected (Ceiling and Fixed Price)
Commercial/Industrial/Other
Total
Twelve Months Ended
September 30,
2021
September 30,
2020
43.0%
44.9%
12.1%
100.0%
41.5%
46.1%
12.4%
100.0%
Volume of motor fuel and other petroleum products sold increased by 2.3 million gallons, or 1.5%, to 154.1 million gallons for fiscal 2021,
compared to 151.8 million gallons for fiscal 2020.
Product Sales
For fiscal 2021, product sales increased 1.5%, to $1,204.3 million, compared to $1,186.0 million in fiscal 2020, largely due to an increase in
wholesale product cost of $0.0530 per gallon, or 3.3%.
Installations and Services Sales
For fiscal 2021, installation and service sales increased $11.4 million, or 4.0%, to $292.8 million, compared to $281.4 million for fiscal 2020, as
both installation and service sales rebounded from the negative impact of
COVID-19 on economic activity in fiscal 2020.
37
Cost of Product
For fiscal 2021, cost of product increased $15.9 million, or 2.2%, to $754.6 million, compared to $738.7 million for fiscal 2020, primarily due to
the impact of a $0.0530 per gallon, or 3.3%, increase in wholesale product cost.
Gross Profit—Product
The table below calculates our per gallon margins and reconciles product gross profit for home heating oil and propane and motor fuel and other
petroleum products. We believe the change in home heating oil and propane margins should be evaluated before the effects of increases or decreases in the
fair value of derivative instruments, as we believe that realized per gallon margins should not include the impact of non-cash changes in the market value of
hedges before the settlement of the underlying transaction. On that basis, home heating oil and propane margins for fiscal 2021 increased by $0.0410 per
gallon, or 3.1%, to $1.3366 per gallon, from $1.2956 per gallon during fiscal 2020. We cannot assume that the per gallon margins realized during fiscal
2021 are sustainable for future periods. Product sales and cost of product include home heating oil, propane, motor fuel, other petroleum products and
liquidated damages billings.
Home Heating Oil and Propane
Volume
Sales
Cost
Gross Profit
Motor Fuel and Other Petroleum Products
Volume
Sales
Cost
Gross Profit
Total Product
Sales
Cost
Gross Profit
Twelve Months Ended
September 30, 2021
September 30, 2020
Amount
(in millions)
Per
Gallon
Amount
(in millions)
Per
Gallon
305.9
881.5 $
472.6 $
408.9 $
2.8816 $
1.5450 $
1.3366 $
313.6
924.4 $
518.1 $
406.3 $
2.9479
1.6523
1.2956
Amount
(in millions)
Per
Gallon
Amount
(in millions)
Per
Gallon
154.1
322.8 $
282.0 $
40.8 $
2.0951 $
1.8304 $
0.2647 $
151.8
261.6 $
220.6 $
41.0 $
1.7238
1.4534
0.2704
Amount
(in millions)
1,204.3
754.6
449.7
Amount
(in millions)
$
$
$
1,186.0
738.7
447.3
$
$
$
$
$
$
$
$
$
For fiscal 2021, total product gross profit was $449.7 million, which was $2.4 million, or 0.5%, more than fiscal 2020, primarily due to an increase
in home heating oil and propane margins ($12.4 million) that was partially offset by a $10.0 million decrease due to lower home heating oil and propane
volume sold.
Cost of Installations and Services
Total installation costs for fiscal 2021 increased to $90.1 million, compared to $83.8 million for fiscal 2020, primarily due to increased installation
revenues. Installation costs as a percentage of installation sales for fiscal 2021 and fiscal 2020, were 81.5% and 82.4%, respectively.
Service expense increased by $4.8 million, or 2.9%, to $174.7 million for fiscal 2021, representing 95.9% of service sales, versus $169.9 million,
or 94.5% of service sales, for fiscal 2020. Service expense rose as the Company resumed normal service work and activity that was curtailed during fiscal
2020 due to COVID-19.
We realized a combined gross profit from services and installations of $28.0 million for fiscal 2021 compared to a combined gross profit of
$27.7 million for fiscal 2020, a $0.3 million improvement in profitability.
38
Management views the service and installation department on a combined basis because many overhead functions cannot be separated or precisely
allocated to either service or installation billings.
(Increase) Decrease in the Fair Value of Derivative Instruments
During fiscal 2021, the change in the fair value of derivative instruments resulted in a $36.1 million credit due to an increase in the market value
for unexpired hedges (a $23.6 million credit) and a $12.5 million credit due to the expiration of certain hedged positions.
During fiscal 2020, the change in the fair value of derivative instruments resulted in a $2.8 million charge due to a decrease in the market value for
unexpired hedges (a $12.2 million charge) and partially offset by a $9.4 million credit due to the expiration of certain hedged positions.
Delivery and Branch Expenses
For fiscal 2021, delivery and branch expenses increased $4.5 million, or 1.4%, to $327.9 million, compared to $323.4 million for fiscal 2020, as a
$6.7 million lower benefit recorded from the Company’s weather hedge and $3.5 million of additional costs from acquisitions was offset by a decline in
operating costs in the base business of $5.8 million, or 1.7%. In the base business, the decrease was driven by $3.5 million of lower bad debt and credit
card processing fees and other net expense savings of $2.3 million. While temperatures were warmer for fiscal 2021 than the prior year’s comparable
period, temperatures during the weather hedge period for fiscal 2021 were colder than fiscal 2020, resulting in a lower weather hedge benefit.
Depreciation and Amortization Expenses
For fiscal 2021, depreciation and amortization expense decreased $1.1 million, or 3.3%, to $33.5 million, compared to $34.6 million for fiscal 2020,
primarily due to lower amortization expense related to intangible assets that fully amortized in the prior fiscal year.
General and Administrative Expenses
For fiscal 2021, general and administrative expenses were $25.1 million, essentially unchanged from fiscal 2020, as a $0.6 million decrease in
pension expense was offset by a $0.3 million increase in acquisition related expenses and a $0.3 million increase in salaries and benefit expenses.
Finance Charge Income
For fiscal 2021, finance charge income decreased by $0.9 million, or 23.1%, to $2.9 million compared to $3.8 million for fiscal 2020, primarily due
to lower customer late payment charges resulting from lower past due receivable balances.
Interest Expense, Net
For fiscal 2021, net interest expense decreased by $1.9 million, or 19.4%, to $7.8 million compared to $9.7 million for fiscal 2020. The year-over-
year change reflects a decrease in average borrowings of $23.7 million from $162.7 million for fiscal 2020 to $139.0 million for fiscal 2021, and a decrease
in the weighted average interest rate from 4.9% for fiscal 2020 to 4.0% for fiscal 2021. To hedge against rising interest rates, the Company utilizes interest
rate swaps. At September 30, 2021, $59.0 million, or 53%, of Star’s long-term debt was fixed.
Amortization of Debt Issuance Costs
For fiscal 2021, amortization of debt issuance costs was $1.0 million, essentially unchanged from fiscal 2020.
Other Loss, Net
In the fourth quarter of fiscal year 2020, we reclassified certain propane assets to assets held for sale on our consolidated balance sheet that were
sold in October 2020. As a result, we recorded an impairment charge of $5.7 million, which represents the difference between the fair value less cost to sell
and the carrying value of the
39
assets. See Note 2 to our Consolidated Financial Statements of this Form 10-K for additional details. No similar activity occurred in fiscal 2021.
Income Tax Expense
For fiscal 2021, the Company’s income tax expense increased by $13.1 million to $33.7 million, from $20.6 million for fiscal 2020, due primarily
to an increase in income before income taxes of $44.9 million that was driven by a $38.9 million non-cash favorable change in the fair market value of
derivative instruments.
Net Income
For fiscal 2021, net income increased $31.8 million, or 56.9%, to $87.7 million, due to a favorable change in the fair value of derivative
instruments of $38.9 million, the non-recurrence of the $5.7 million impairment charge recorded in fiscal 2020, lower interest expense of $1.9 million and
lower depreciation and amortization expense of $1.1 million that was partially offset by an increase in income tax expense of $13.1 million and a $2.8
million decrease in Adjusted EBITDA, described below
Adjusted EBITDA
For fiscal 2021, Adjusted EBITDA decreased by $2.8 million, or 2.1%, to $127.5 million compared to fiscal 2020. An increase in home heating oil
and propane margins ($0.0410 per gallon), lower total operating expenses in the base business ($5.8 million) and the Adjusted EBITDA from acquisitions
($2.8 million) were more than offset by a $6.7 million decline in the benefit recorded from the Company’s weather hedge and a decline in home heating oil
and propane volume (7.7 million gallons). While temperatures were warmer for fiscal 2021 than the prior year’s comparable period, temperatures during
the weather hedge period for fiscal 2021 were colder than fiscal 2020, hence the lower weather hedge benefit.
EBITDA and Adjusted EBITDA should not be considered as an alternative to net income (as an indicator of operating performance) or as an
alternative to cash flow (as a measure of liquidity or ability to service debt obligations), but provide additional information for evaluating the Company’s
ability to make the Minimum Quarterly Distribution.
40
EBITDA and Adjusted EBITDA are calculated as follows:
(in thousands)
Net income
Plus:
Income tax expense
Amortization of debt issuance cost
Interest expense, net
Depreciation and amortization
EBITDA (a)
(Increase) / decrease in the fair value of derivative instruments
Other loss, net
Adjusted EBITDA (a)
Add / (subtract)
Income tax expense
Interest expense, net
(Recovery) provision for losses on accounts receivable
(Increase) decrease in receivables
(Increase) decrease in inventories
Increase in customer credit balances
Change in deferred taxes
Change in other operating assets and liabilities
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Twelve Months Ended
September 30,
2021
2020
$
87,737 $
55,918
33,675
972
7,816
33,485
163,685
(36,138)
—
127,547
(33,675)
(7,816)
(248)
(15,171)
(11,472)
3,054
11,361
(4,703)
68,877 $
(50,326) $
(70,695) $
20,625
999
9,702
34,623
121,867
2,755
5,724
130,346
(20,625)
(9,702)
3,441
34,366
14,588
14,775
(3,544)
12,023
175,668
(28,141)
(95,515)
$
$
$
(a)
EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA
(Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value
of derivatives, other income (loss), net, multiemployer pension plan withdrawal charge, gain or loss on debt redemption, goodwill impairment, and
other non-cash and non-operating charges) are non-GAAP financial measures that are used as supplemental financial measures by management and
external users of our financial statements, such as investors, commercial banks and research analysts, to assess:
•
•
•
•
•
our compliance with certain financial covenants included in our debt agreements;
our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis;
our operating performance and return on invested capital compared to those of other companies in the retail distribution of refined
petroleum products, without regard to financing methods and capital structure;
our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners; and
the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities.
The method of calculating Adjusted EBITDA may not be consistent with that of other companies, and EBITDA and Adjusted EBITDA both have
limitations as analytical tools and so should not be viewed in isolation and should be viewed in conjunction with measurements that are computed in
accordance with GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are:
•
EBITDA and Adjusted EBITDA do not reflect our cash used for capital expenditures;
41
•
•
•
•
Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and
EBITDA and Adjusted EBITDA do not reflect the cash requirements for such replacements;
EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements;
EBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and
EBITDA and Adjusted EBITDA do not reflect the cash required to pay taxes.
Fiscal Year Ended September 30, 2020
Compared to Fiscal Year Ended September 30, 2019
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations within the Form 10-K for the fiscal year
ended September 30, 2020 for the fiscal 2020 to fiscal 2019 comparative discussion.
DISCUSSION OF CASH FLOWS
We use the indirect method to prepare our Consolidated Statements of Cash Flows. Under this method, we reconcile net income to cash flows
provided by operating activities by adjusting net income for those items that impact net income but do not result in actual cash receipts or payment during
the period.
Operating Activities
Due to the seasonal nature of our business, cash is generally used in operations during the winter (our first and second fiscal quarters) as we require
additional working capital to support the high volume of sales during this period, and cash is generally provided by operating activities during the spring
and summer (our third and fourth quarters) when customer payments exceed the cost of deliveries.
During fiscal 2021, cash provided by operating activities decreased $106.8 million to $68.9 million, compared to $175.7 million of cash provided
by operating activities during fiscal 2020. The decrease was driven by a $61.3 million unfavorable change in accounts receivable (including customer
credit balances) due primarily to higher sales in the fourth quarter of fiscal 2021 as compared to the fourth quarter of fiscal 2020, a $26.1 million
unfavorable change in inventory due primarily to the higher cost of liquid product on hand as of September 30, 2021 as compared to September 30, 2020, a
$11.5 million unfavorable change in payroll accruals due to timing, a $9.1 million unfavorable change in cash posted as collateral at derivative
counterparties due to higher NYMEX ultra low sulfur diesel contract pricing as of September 30, 2021 as compared to September 30, 2020, $7.8 million of
net payroll taxes deferred from fiscal 2020 to fiscal 2021 as a result of certain tax and legislative actions, and a $2.7 million reduction in cash from
operations that was partially offset by a $10.1 million favorable change in accounts payable due to the pricing and timing of inventory purchases, and $1.6
million of other changes in working capital.
During fiscal 2020, cash provided by operating activities increased $78.3 million to $175.7 million, compared to $97.4 million during fiscal 2019.
This reflects a $35.4 million favorable change in accounts receivables (net of customer credit balances) due to improved collections and lower sales volume
at lower selling prices, a $20.9 million favorable change in inventory primarily due to lower cost of liquid product on hand as of September 30, 2020 as
compared to September 30, 2019, a $18.8 million increase in cash generated from operations, $6.5 million of certain payroll tax withholdings related to
fiscal 2020 that are deferred to calendar 2021 and 2022 as a result of certain tax and legislative actions, and $3.3 million of other net changes in working
capital.
Investing Activities
Our capital expenditures for fiscal 2021 totaled $15.1 million, as we invested in computer hardware and software ($3.2 million), refurbished certain
physical plants ($2.8 million), expanded our propane operations ($2.3 million) and made additions to our fleet and other equipment ($6.8 million).
42
During fiscal 2021, we reinvested $1.1 million into an irrevocable trust to secure certain liabilities for our captive insurance company. The cash
deposited into the trust is shown on our balance sheet as captive insurance collateral and, correspondingly, reduced cash on our balance sheet. We believe
that investments into the irrevocable trust will lower our letter of credit fees, increase interest income on invested cash balances, and provide us with certain
tax advantages attributable to a captive insurance company.
During fiscal 2021, the Company acquired two propane and three heating oil dealers for an aggregate purchase price of $42.5 million; $40.7
million in cash and $1.8 million of deferred liabilities. The gross purchase price was allocated $37.3 million to goodwill and intangible assets and $6.2
million to fixed assets, and reduced by $1.0 million in working capital credits.
On October 27, 2020, the Company sold certain propane assets for cash proceeds of $6.1 million.
Our capital expenditures for fiscal 2020 totaled $14.1 million, as we invested in computer hardware and software ($3.5 million), refurbished certain
physical plants ($2.8 million), expanded our propane operations ($1.4 million) and made additions to our fleet and other equipment ($6.4 million).
During fiscal 2020, we deposited $8.9 million into an irrevocable trust to secure certain liabilities for our captive insurance company and another
$1.5 million of earnings were reinvested into the irrevocable trust.
During fiscal 2020, the Company acquired two oil dealers for an aggregate purchase price of approximately $3.0 million in cash and $0.3 million
of deferred liabilities. The gross purchase price was allocated $3.2 million to goodwill and intangible assets and $0.6 million to fixed assets, and reduced
by $0.5 million in working capital credits. The Company also completed the purchase of assets related to our fiscal 2019 acquisition of a heating oil
dealer for an aggregate purchase price of approximately $1.2 million.
Financing Activities
During fiscal 2021, we repaid $13.0 million of our term loan, borrowed $75.2 million and subsequently repaid $66.5 million under our revolving
credit facility, repurchased 4.3 million Common Units for $42.8 million primarily in connection with our unit repurchase plan, and paid distributions of
$22.4 million to our Common Unit holders and $1.0 million to our General Partner unit holders (including $0.9 million of incentive distributions as
provided in our Partnership Agreement).
During fiscal 2020, we refinanced our five-year term loan and the revolving credit facility with the execution of the fifth amended and restated
revolving credit facility agreement. The $130 million of proceeds from the new term loan were used to repay the $90.0 million outstanding balance of the
term loan, $39.0 million of the revolving credit facility borrowings under the old credit facility, and $1.0 million of debt issuance costs. We also paid an
additional $0.6 million of debt issuance costs, repaid an additional net balance of $22.5 million under our revolving credit facility, repaid an additional
$9.0 million of our term loan, repurchased 4.4 million Common Units for $38.4 million in connection with our unit repurchase plan, and paid distributions
of $23.5 million to our Common Unit holders and $0.9 million to our General Partner unit holders (including $0.8 million of incentive distributions as
provided in our Partnership Agreement).
FINANCING AND SOURCES OF LIQUIDITY
Liquidity and Capital Resources Comparatives
Our primary uses of liquidity are to provide funds for our working capital, capital expenditures, distributions on our units, acquisitions and unit
repurchases. Our ability to provide funds for such uses depends on our future performance, which will be subject to prevailing economic, financial, and
business conditions, especially in light of the impact of COVID-19, weather, the ability to collect current and future accounts receivable, the ability to pass
on the full impact of high product costs to customers, the effects of high net customer attrition, conservation and other factors. Capital requirements, at least
in the near term, are expected to be provided by cash flows from operating activities, cash on hand as of September 30, 2021 ($4.8 million) or a
combination thereof. To the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we anticipate that working
capital will be financed by our revolving credit facility, as discussed below, and from subsequent seasonal reductions in inventory and accounts receivable.
As of September 30, 2021, we had accounts receivable of $99.7 million of which $60.9 million is due from residential customers and $38.8 million is due
from commercial
43
customers. Our ability to borrow from our bank group is based in part on the aging of these accounts receivable. If these balances do not meet the eligibility
tests as found in our fifth amended and restated credit agreement, our ability to borrow will be reduced and our anticipated cash flow from operating
activities will also be reduced. As of September 30, 2021, we had $8.6 million borrowings under our revolving credit facility, $110.5 million outstanding
under our term loan, $3.1 million in letters of credit outstanding, and no hedge positions were secured with the bank group.
Under the terms of the fifth amended and restated credit agreement, we must maintain at all times Availability (borrowing base less amounts
borrowed and letters of credit issued) of 15% of the maximum facility size and a fixed charge coverage ratio of not less than 1.15. We must also maintain a
senior secured leverage ratio that cannot be more than 3.0 as of June 30th or September 30th, and no more than 4.5 as of December 31st or March 31st. As
of September 30, 2021, Availability, as defined in the fifth amended and restated revolving credit facility agreement, was $171.5 million and we were in
compliance with the fixed charge coverage ratio and senior secured leverage ratio.
Maintenance capital expenditures for fiscal 2022 are estimated to be approximately $15.8 million, excluding the capital requirements for leased
fleet which we currently estimate to be $10.9 million. In addition, we plan to invest approximately $4.0 million in our propane operations. Distributions for
fiscal 2022, at the current quarterly level of $0.1425 per unit, would result in aggregate payments of approximately $22.0 million to Common Unit holders,
$1.1 million to our General Partner (including $1.0 million of incentive distribution as provided for in our Partnership Agreement) and $1.0 million to
management pursuant to the management incentive compensation plan which provides for certain members of management to receive incentive
distributions that would otherwise be payable to the General Partner. Under the terms of our credit facility, our term loan is repayable in quarterly payments
of $3.25 million. We are also required to make an additional term loan repayments due to Excess Cash Flow of $4.6 million in December 2021 (see Note
13 - Long-Term Debt and Bank Facility Borrowings). Further, subject to any additional liquidity issues or concerns resulting from the current COVID-19
pandemic, we intend to continue to repurchase Common Units pursuant to our unit repurchase plan, as amended from time to time, and seek attractive
acquisition opportunities within the Availability constraints of our revolving credit facility and funding resources.
Contractual Obligations and Off-Balance Sheet Arrangements
We have no special purpose entities or off balance sheet debt.
Long-term contractual obligations, except for our long-term debt and New England Teamsters and Trucking Industry Pension Fund withdrawal
obligations and operating leases liabilities, are not recorded in our consolidated balance sheet. Non-cancelable purchase obligations are obligations we
incur during the normal course of business, based on projected needs. The Company had no capital lease obligations as of September 30, 2021.
The table below summarizes the payment schedule of our contractual obligations at September 30, 2021 (in thousands):
Debt obligations (a)
Operating lease obligations (b)
Purchase obligations and other (c)
Interest obligations (d)
Long-term liabilities reflected on the balance sheet
Total
119,118
119,575
62,742
18,402
496
320,333
$
$
$
$
Payments Due by Fiscal Year
2023
and 2024
2025
and 2026
2022
Thereafter
26,239
21,920
12,486
8,811
350
69,806
$
$
26,000
37,693
10,826
8,969
146
83,634
$
$
66,879
28,741
6,808
622
—
103,050
$
$
—
31,221
32,622
—
—
63,843
(a)
(b)
(c)
Reflects payments due of debt existing as of September 30, 2021, considering the terms of our fifth amended and restated credit agreement. (See
Note 13 - Long-Term Debt and Bank Facility Borrowings)
Represents various operating leases for office space, trucks, vans and other equipment with third parties. Maturities of operating leases are
presented undiscounted. (See Note 16 - Leases)
Represents non-cancelable commitments as of September 30, 2021 for operations such as customer related invoice and statement processing, voice
and data phone/computer services, real estate taxes on leased property
44
and our undiscounted future payment obligations to the New England Teamsters and Trucking Industry Pension Fund.
Reflects interest obligations on our term loan due December 2024 and the unused commitment fee on the revolving credit facility.
(d)
Recent Accounting Pronouncements
Refer to Note 2 – Summary of Significant Accounting Policies for discussion regarding the impact of accounting standards that were recently
issued but not yet effective, on our consolidated financial statements.
Critical Accounting Policy and Critical Accounting Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to establish accounting
policies and make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the Consolidated Financial Statements. The
Company evaluates its policies and estimates on an on-going basis. A change in any of these critical accounting policies and estimates could have a
material effect on the results of operations. The Company’s Consolidated Financial Statements may differ based upon different estimates and assumptions.
The Company’s critical accounting policies and estimates have been reviewed with the Audit Committee of the Board of Directors.
Our significant accounting policies are discussed in Note 2 of the Notes to the Consolidated Financial Statements. We believe the following are our
critical accounting policies and estimates:
Critical Accounting Policy
Fair Values of Derivatives
FASB ASC 815-10-05, Derivatives and Hedging, requires that derivative instruments be recorded at fair value and included in the consolidated
balance sheet as assets or liabilities. The Company has elected not to designate its commodity derivative instruments as hedging instruments under this
guidance, and therefore the change in fair value of those derivative instruments are recognized in our statement of operations.
We have established the fair value of our derivative instruments using estimates determined by our counterparties and subsequently evaluated
them internally using established index prices and other sources. These values are based upon, among other things, future prices, volatility, time-to-maturity
value and credit risk. The estimate of fair value we report in our financial statements changes as these estimates are revised to reflect actual results, changes
in market conditions, or other factors, many of which are beyond our control.
Critical Accounting Estimates
Our significant accounting policies are discussed in Note 2 of the Notes to the Consolidated Financial Statements. We believe the following are our
critical accounting policies and estimates:
Self-Insurance Liabilities
We currently self-insure a portion of workers’ compensation, auto, general liability and medical claims. We establish and periodically evaluate
self-insurance liabilities based upon expectations as to what our ultimate liability may be for outstanding claims using developmental factors based upon
historical claim experience, including frequency, severity, demographic factors and other actuarial assumptions, supplemented with the support of a
qualified third-party actuary. As of September 30, 2021, we had approximately $80.6 million of self-insurance liabilities. The ultimate resolution of these
claims could differ materially from the assumptions used to calculate the self-insurance liabilities, which could have a material adverse effect on results of
operations.
45
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risk primarily through our bank credit facilities. We utilize these borrowings to meet our working capital needs.
At September 30, 2021, we had outstanding borrowings totaling $119.1 million, which are subject to variable interest rates under our credit
agreement. In the event that interest rates associated with this facility were to increase 100 basis points, the after tax impact on annual future cash flows
would be a decrease of $0.9 million.
We regularly use derivative financial instruments to manage our exposure to market risk related to changes in the current and future market price of
home heating oil. The value of market sensitive derivative instruments is subject to change as a result of movements in market prices. Sensitivity analysis is
a technique used to evaluate the impact of hypothetical market value changes. Based on a hypothetical ten percent increase in the cost of product at
September 30, 2021, the potential impact on our hedging activity would be to increase the fair market value of these outstanding derivatives by
$15.8 million to a fair market value of $43.6 million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the fair
market value of these outstanding derivatives by $13.8 million to a fair market value of $14.0 million.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedules referred to in the index contained on page F-1 of this Report are incorporated herein by
reference.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Our general partner’s chief executive officer and our chief financial officer evaluated the effectiveness of the Company’s disclosure controls and
procedures (as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of September 30, 2021. Based on that
evaluation, such chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of
September 30, 2021 at the reasonable level of assurance. For purposes of Rule 13a-15(e), the term disclosure controls and procedures means controls and
other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under
the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including our chief executive
officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision of management and with the participation of
our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on our evaluation of internal control over financial reporting, our management concluded that our internal
control over financial reporting was effective as of September 30, 2021.
46
The effectiveness of our internal control over financial reporting as of September 30, 2021 has been audited by our independent registered public
accounting firm, as stated in their report which is included at Item 8 – Financial Statements and Supplementary Data.
(c) Change in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
(d) Other
Our general partner and the Company believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance
that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable
assurances of achieving our desired control objectives, and the chief executive officer and chief financial officer of our general partner have concluded, as
of September 30, 2021, that our disclosure controls and procedures were effective in achieving that level of reasonable assurance.
ITEM 9B.
OTHER INFORMATION
Not applicable.
47
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Partnership Management
PART III
Our general partner is Kestrel Heat. The Board of Directors of Kestrel Heat is appointed by its sole member, Kestrel, which is a private equity
investment partnership formed by Yorktown Energy Partners VI, L.P., Paul A. Vermylen Jr. and other investors.
Kestrel Heat, as our general partner, oversees our activities. Unitholders do not directly or indirectly participate in our management or operation or
elect the directors of the general partner. The Board of Directors (sometimes referred to as the “Board”) of Kestrel Heat has adopted a set of Partnership
Governance Guidelines in accordance with the requirements of the New York Stock Exchange. A copy of these Guidelines is available on our website at
www.stargrouplp.com or a copy may be obtained without charge by contacting Richard F. Ambury, (203) 328-7310.
As of November 30, 2021, Kestrel Heat owned 325,729 general partner units. In November 2021, Kestrel Heat made an in-kind distribution of
500,000 common units, representing approximately 1% of the issued and outstanding common units, to Kestrel, which, in turn, made an in-kind
distribution of such units, pro rata, to its members.
The general partner owes a fiduciary duty to the unitholders. However, our Partnership Agreement contains provisions that allow the general
partner to take into account the interests of parties other than the limited partners in resolving conflict of interest, thereby limiting such fiduciary duty.
Notwithstanding any limitation on obligations or duties, the general partner will be liable, as our general partner, for all our debts (to the extent not paid by
us), except to the extent that indebtedness or other obligations incurred by us are made specifically non-recourse to the general partner.
The general partner does not directly employ any of the persons responsible for managing or operating Star.
Directors and Executive Officers of the General Partner
Directors are appointed for an indefinite term, subject to the discretion of Kestrel. The following table shows certain information for directors and
executive officers of the general partner as of November 30, 2021:
Name
Paul A. Vermylen, Jr.
Jeffrey M. Woosnam
Richard F. Ambury
Jeffrey S. Hammond
Joseph R. McDonald
Henry D. Babcock(1)
C. Scott Baxter(1)
David M. Bauer(1)
Daniel P. Donovan
Bryan H. Lawrence
William P. Nicoletti (1)
(1)
Audit Committee member
Age
74
53
64
59
52
81
60
52
75
79
76
Position
Chairman, Director
President, Chief Executive Officer and Director
Chief Financial Officer, Executive Vice President, Treasurer and Secretary
Chief Operating Officer
Chief Customer Officer
Director
Director
Director
Director
Director
Director
48
Paul A. Vermylen, Jr. Mr. Vermylen has been the Chairman and a director of Kestrel Heat since April 28, 2006. Mr. Vermylen is a founder of
Kestrel and has served as its President and as a manager since July 2005. Mr. Vermylen had been employed since 1971, serving in various capacities,
including as a Vice President of Citibank N.A. and Vice President-Finance of Commonwealth Oil Refining Co. Inc. Mr. Vermylen served as Chief
Financial Officer of Meenan Oil Co., L.P. (“Meenan”) from 1982 until 1992 and as President of Meenan until 2001, when we acquired Meenan. Since
2001, Mr. Vermylen has pursued private investment opportunities.
Mr. Vermylen serves as a director of certain non-public companies in the energy industry in which Kestrel holds equity interests including
Downeast LNG, Inc. Mr. Vermylen is a graduate of Georgetown University and has an M.B.A. from Columbia University.
Mr. Vermylen’s substantial experience in the home heating oil industry and his leadership skills and experience as an executive officer of Meenan,
among other factors, led the Board to conclude that he should serve as the Chairman and a director of Kestrel Heat.
Jeffrey M. Woosnam. Mr. Woosnam has been President, Chief Executive Officer and a director of Kestrel Heat since March 18, 2019. From May
2014 to March 2019, Mr. Woosnam served as Senior Vice President, Southern Operations. From April 2007 to May 2014, Mr. Woosnam served as Vice
President, Southern Operations. From 2006 to 2007, he served as the Director of Operations for Petroleum Heat and Power Company, a subsidiary of the
Company. From 1994 to 2006, he held several General Management positions for Petro, Inc. with increasing levels of responsibility.
Mr. Woosnam’s in-depth knowledge of the Company’s business and his substantial experience in the home heating oil industry, among other
factors, led the Board to conclude that he should serve as a director of Kestrel Heat.
Richard F. Ambury. Mr. Ambury has been Executive Vice President of Kestrel Heat since May 1, 2010 and has been Chief Financial Officer,
Treasurer and Secretary of Kestrel Heat since April 28, 2006. Mr. Ambury was Chief Financial Officer, Treasurer and Secretary of Star Group from May
2005 until April 28, 2006. From November 2001 to May 2005, Mr. Ambury was Vice President and Treasurer of Star Group. From March 1999 to
November 2001, Mr. Ambury was Vice President of Star Gas Propane, L.P. From February 1996 to March 1999, Mr. Ambury served as Vice President—
Finance of Star Gas Corporation, a predecessor general partner. Mr. Ambury was employed by Petroleum Heat and Power Co., Inc. from June 1983 through
February 1996, where he served in various accounting/finance capacities. From 1979 to 1983, Mr. Ambury was employed by a predecessor firm of KPMG,
a public accounting firm. Mr. Ambury has been a Certified Public Accountant since 1981.
Jeffrey S. Hammond. Mr. Hammond has been Chief Operating Officer of Kestrel Heat since March 18, 2019. From October 2013 to March 2019,
he served as Senior Vice President, Northern Operations. From April 2007 to October 2013, Mr. Hammond served as Vice President, Northern Operations.
From 2006 to 2007, he served as the Director of Operations for Petro Holdings, Inc., a subsidiary of the Company. From 2004 to 2006, Mr. Hammond
served as Director of Planning and Logistics for Petro Holdings, Inc. From 2003 to 2004, he held a General Manager position for Petro Holdings, Inc. Prior
to joining the Company in January 2003, Mr. Hammond worked for United Parcel Service for 19 years. While at UPS, he held various management
positions in Operations and Industrial Engineering.
Joseph R. McDonald. Mr. McDonald has been Chief Customer Officer of Kestrel Heat since March 18, 2019. From May 2014 to March 2019, he
served as Senior Vice President of Sales, Marketing & Retention. From May 2005 to May 2014, Mr. McDonald served as Vice President, Sales and
Marketing. From October 2004 to May 2005, he served as the Director of Sales for Petro Holdings, Inc., a subsidiary of the Company. From January 2003
to October 2004, was a Regional Sales Manager for Petro Holdings, Inc.
Henry D. Babcock. Mr. Babcock has been a director of Kestrel Heat since April 28, 2006. He retired at the end of 2019 as director and the former
President of The Caumsett Foundation, Inc., a non-profit that supports Caumsett Historic State Park Preserve. Until his retirement in 2010, Mr. Babcock
had worked with Train, Babcock Advisors LLC, a private registered investment advisor, since 1976, becoming a Member in 1980. Prior to this, he ran
49
an affiliated venture capital company active in the U.S. and abroad. Mr. Babcock received a BA from Yale University and an MBA from Columbia. He
served in the U.S. Army for three years.
Mr. Babcock’s significant experience in capital markets, corporate finance and venture capital, among other factors, led the Board to conclude that
he should serve as a director of Kestrel Heat.
C. Scott Baxter. Mr. Baxter has been a director of Kestrel Heat since April 28, 2006. Mr. Baxter is currently a Managing Director at Berkeley
Research Group (“BRG”), a global investment banking advisory and consulting firm. Mr. Baxter has over 30 years of energy investment banking
experience and has been a primary advisor in sourcing and executing over $200 billion in corporate M&A, restructuring and equity financing transactions
in the energy industry. Mr. Baxter also has significant experience advising independent committees of boards including rendering over 40 independent
fairness opinions spanning the upstream, downstream and midstream energy sectors including for many MLPs.
Mr. Baxter’s previous energy investment banking experience includes opening and running the Houston office for Petrie Partners, serving as Head
of the Americas for J.P. Morgan’s global energy group, Managing Director in the global energy group at Citigroup (Salomon Brothers), and serving as head
of the energy group for Houlihan Lokey.
Mr. Baxter holds a B.S. degree in Economics from Weber State University where he graduated cum laude, and received an MBA degree from the
University of Chicago Graduate School of Business. Mr. Baxter also served as an adjunct professor of finance at Columbia University’s Graduate School of
Business from 2002 to 2006 and has been on the President’s National Advisory Council for Weber State University since 1996.
Mr. Baxter’s significant experience in finance, accounting, as an investor and as a senior investment banker focused in the energy industry, among
other factors, led the Board to conclude that he should serve as a director of Kestrel Heat.
David M. Bauer. Mr. Bauer has served as the Chief Investment Officer of Lubar & Co. since 2005. Mr. Bauer’s work experience includes five
years with Facilitator Capital Fund, a Wisconsin-based Small Business Investment Company, and 10 years with the accounting firm of Arthur Andersen,
where he led the Wisconsin transaction advisory team assisting private equity funds and large corporations with their acquisitions and divestitures. He
currently serves on the board of several private companies.
Mr. Bauer earned a Master of Business Administration degree from Marquette University in 2005 and a Bachelor of Science degree in Accounting
from Marquette University in 1991. He is a Certified Public Accountant and a member of the Wisconsin Institute of CPAs and the American Institute of
CPAs.
Daniel P. Donovan. Mr. Donovan has been a director of Kestrel Heat since April 28, 2006. Mr Donovan served as President and Chief Executive
Officer on an interim basis from December 23, 2018 to March 18, 2019, served as consultant from March 18, 2019 to April 30, 2019, and served as Chief
Executive Officer of Kestrel Heat from May 31, 2007 to September 30, 2013 and had been President from April 28, 2006 to September 30, 2013. From
April 28, 2006 to May 30, 2007 Mr. Donovan was also the Chief Operating Officer of Kestrel Heat. Mr. Donovan was the President and Chief Operating
Officer of a predecessor general partner, Star Gas LLC (“Star Gas”), from March 2005 until April 28, 2006. From May 2004 to March 2005 he was
President and Chief Operating Officer of the Company’s heating oil segment. Mr. Donovan held various management positions with Meenan Oil Co. LP,
from January 1980 to May 2004, including Vice President and General Manager from 1998 to 2004. Mr. Donovan worked for Mobil Oil Corp. from 1971
to 1980. His last position with Mobil was President and General Manager of its heating oil subsidiary in New York City and Long Island. Mr. Donovan is a
graduate of St. Francis College in Brooklyn, New York and received an M.B.A. from Iona College.
Mr. Donovan’s in-depth knowledge of the Company’s business, having been its president and chief executive officer, and his substantial experience
in the home heating oil industry, among other factors, led the Board to conclude that he should serve as a director of Kestrel Heat.
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Bryan H. Lawrence. Mr. Lawrence has been a director of Kestrel Heat since April 28, 2006 and a manager of Kestrel since July 2005.
Mr. Lawrence is a founder and senior manager of Yorktown Partners LLC, the manager of the Yorktown group of investment partnerships, which make
investments in companies engaged in the energy industry. The Yorktown partnerships were formerly affiliated with the investment firm of Dillon, Read &
Co. Inc., where Mr. Lawrence was employed beginning in 1966, serving as a Managing Director until the merger of Dillon Read with SBC Warburg in
September 1997. Mr. Lawrence also serves as a director of Hallador Petroleum Company, Ramaco Resources, Inc., Riley Exploration Permian, Inc. (each a
United States publicly traded company), and certain non-public companies in the energy industry in which Yorktown partnerships hold equity interests.
Mr. Lawrence is a graduate of Hamilton College and received an M.B.A. from Columbia University.
Mr. Lawrence’s significant financial and investment experience, and experience as a founder of Yorktown Energy Partners LLC, among other
factors, led the Board to conclude that he should serve as a director of Kestrel Heat.
William P. Nicoletti. Mr. Nicoletti has been a director of Kestrel Heat since April 28, 2006. Mr. Nicoletti was the non-executive chairman of the
board of Star Gas from March 2005 until April 28, 2006. Mr. Nicoletti was a director of Star Gas from March 1999 until April 28, 2006 and was a director
of Star Gas Corporation from November 1995 until March 1999. Since February 1, 2009, he has been a Managing Director of Parkman Whaling LLC, a
Houston, Texas based energy investment banking firm. Previously, he was Managing Director of Nicoletti & Company, Inc., a private investment banking
firm. Mr. Nicoletti was formerly a senior officer and head of Energy Investment Banking for E. F. Hutton & Company, Inc., PaineWebber Incorporated and
McDonald Investments, Inc. Mr. Nicoletti is a graduate of Seton Hall University and received an M.B.A. from Columbia University.
Mr. Nicoletti’s current and prior leadership experience in the energy investment banking industry and his significant experience in finance,
accounting and corporate governance matters, among other factors, led the Board to conclude that he should serve as a director of Kestrel Heat.
Director Independence
Section 303A of the New York Stock Exchange listed company manual provides that limited partnerships are not required to have a majority of
independent directors. It is the policy of the Board of Directors that the Board shall at all times have at least three independent directors or such higher
number as may be necessary to comply with the applicable federal securities law requirements. For the purposes of this policy, “independent director” has
the meaning set forth in Section 10A(m) of the Securities Exchange Act of 1934, as amended, any applicable stock exchange rules and the rules and
regulations promulgated in the Partnership governance guidelines available on its website www.stargrouplp.com. The Board of Directors has determined
that Messrs. Nicoletti, Babcock, Bauer and Baxter are independent directors.
Meetings of Directors
During fiscal 2021, the Board of Directors of Kestrel Heat met seven times. All directors attended each meeting.
Committees of the Board of Directors
Kestrel Heat’s Board of Directors has one standing committee, the Audit Committee. Its members are appointed by the Board of Directors for a
one-year term and until their respective successors are elected. The NYSE corporate governance standards do not require limited partnerships to have a
Nominating or Compensation Committee.
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Audit Committee
William P. Nicoletti, Henry D. Babcock, David M. Bauer and C. Scott Baxter have been appointed to serve on the Audit Committee, which has
adopted an Audit Committee Charter. Mr. Nicoletti serves as chairman of the Audit Committee. A copy of this charter is available on the Company’s
website at www.stargrouplp.com or a copy may be obtained without charge by contacting Richard F. Ambury at (203) 328-7310. The Audit Committee
reviews the external financial reporting of the Company, selects and engages the Company’s independent registered public accountants and approves all
non-audit engagements of the independent registered public accountants.
Members of the Audit Committee may not be employees of Kestrel Heat or its affiliated companies and must otherwise meet the New York Stock
Exchange and SEC independence requirements for service on the Audit Committee. The Board of Directors has determined that Messrs. Nicoletti,
Babcock, Bauer and Baxter are independent directors in that they do not have any material relationships with the Company (either directly, or as a partner,
shareholder or officer of an organization that has a relationship with the Company) and they otherwise meet the independence requirements of the NYSE
and the SEC. The Company’s Board of Directors has also determined that at least one member of the Audit Committee, Mr. Nicoletti, meets the SEC
criteria of an “audit committee financial expert.” Please see Mr. Nicoletti’s biography under “Directors and Officers of the General Partner” for his relevant
experience regarding his qualifications as an “audit committee financial expert.”
During fiscal 2021, the Audit Committee of Kestrel Heat, LLC met five times. All directors attended each meeting.
Reimbursement of Expenses of the General Partner
The general partner does not receive any management fee or other compensation for its management of the Company. The general partner is
reimbursed for all expenses incurred on behalf of the Company, including the cost of compensation that are properly allocable to the Company. The
Partnership Agreement provides that the general partner shall determine the expenses that are allocable to the Company in any reasonable manner
determined by the general partner in its sole discretion. In addition, the general partner and its affiliates may provide services to the Company for which a
reasonable fee would be charged as determined by the general partner. There were no reimbursements of the General Partner in fiscal year 2021.
Adoption of Code of Business Conduct and Ethics
We have adopted a written Code of Business Conduct and Ethics that applies to our officers and employees and our directors. A copy of the Code
of Business Conduct and Ethics is available on our website at www.stargrouplp.com or a copy may be obtained without charge, by contacting Investor
Relations, (203) 328-7310.
We intend to post amendments to or waivers of our Code of Business Conduct and Ethics (to the extent applicable to any executive officer or
director) on our website.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on copies of reports furnished to us, we believe that during fiscal year 2021, all reporting persons complied with the Section 16(a) filing
requirements applicable to them.
Non-Management Directors and Interested Party Communications
The non-management directors on the Board of Directors of the general partner are Messrs. Babcock, Bauer, Baxter, Donovan, Lawrence, Nicoletti
and Vermylen. The non-management directors have selected Mr. Vermylen, the Chairman of the Board, to serve as lead director to chair executive sessions
of the non-management directors. Interested parties who wish to contact the non-management directors as a group may do so by contacting Paul A.
Vermylen, Jr. c/o Star Group, L.P., 9 West Broad Street, Suite 310, Stamford, CT 06902.
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ITEM 11.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Our Third Amended and Restated Agreement of Limited Partnership, provides that our general partner, Kestrel Heat, shall conduct, direct and
manage all activities of the Company. The limited liability company agreement of the general partner provides that the business of the general partner shall
be managed by a Board of Directors. The responsibility of the Board is to supervise and direct the management of the Company in the interest and for the
benefit of our unitholders. Among the Board’s responsibilities is to regularly evaluate the performance and to approve the compensation of the Chief
Executive Officer and, with the advice of the Chief Executive Officer, regularly evaluate the performance and approve the compensation of key executives.
As a limited partnership that is listed on the New York Stock Exchange, we are not required to have a Compensation Committee. Since the
Chairman of the general partner and the majority of the Board are not employees, the Board determined that it has adequate independence to act in the
capacity of a Compensation Committee to establish and review the compensation our executive officers and directors. The Board is comprised of Paul A.
Vermylen Jr. (Chairman), Jeffrey M. Woosnam (President and Chief Executive Officer), Daniel P. Donovan, Henry D. Babcock, David M. Bauer, C. Scott
Baxter, Bryan H. Lawrence, and William P. Nicoletti.
Throughout this Report, each person who served as chief executive officer (“CEO”) during fiscal 2021, each person who served as chief financial
officer (“CFO”) during fiscal 2021 and the two other most highly compensated executive officers serving at September 30, 2021 (there being no other
executive officers) are referred to as the “named executive officers” and are included in the Executive Compensation Table.
In this Compensation Discussion and Analysis, we address the compensation paid or awarded to Messrs. Woosnam, Ambury, Hammond and
McDonald. We refer to these executive officers as our “named executive officers.”
Compensation decisions for the above named executive officers were made by the Board of Directors of the Company.
Compensation Philosophy and Policies
The primary objectives of our compensation program, including compensation of the named executive officers, are to attract and retain highly
qualified officers, employees and directors and to reward individual contributions to our success. The Board of Directors considers the following policies in
determining the compensation of the named executive officers:
•
•
•
compensation should be related to the performance of the individual executive and the performance measured against both financial and non-
financial achievements;
compensation levels should be competitive to ensure that we will be able to attract, motivate and retain highly qualified executive officers;
and
compensation should be related to improving unitholder value over time.
53
Compensation Methodology
The elements of our compensation program for named executive officers are intended to provide a total incentive package designed to drive
performance and reward contributions in support of business strategies at the Company. Subject to the terms of employment agreements that have been
entered into with the named executive officers, all compensation determinations are discretionary and subject to the decision-making authority of the Board
of Directors. We do not use benchmarking as a fixed criterion to determine compensation. Rather, after subjectively setting compensation based on the
policies discussed above under “Compensation Philosophy and Policies”, we reviewed the compensation paid to officers holding similar positions at our
peer group companies and certain information for privately held companies to obtain a general understanding of the reasonableness of base salaries and
other compensation payable to our named executive officers. Our peer group of public companies was comprised of the following companies: Atmos
Energy Corporation, Global Partners, L.P., New Jersey Resources Corporation, Sprague Resources, L.P. and Suburban Propane Partners, L.P. We chose
these companies because they are engaged in the distribution of energy products like us.
Elements of Executive Compensation
For the fiscal year ended September 30, 2021, the principal components of compensation for the named executive officers were:
•
•
•
•
base salary;
annual discretionary profit sharing allocation;
management incentive compensation plan; and
retirement and health benefits.
Under our compensation structure, the mix of base salary, discretionary profit sharing allocation and long-term compensation provided to each
executive officer varies depending on their position. The base salary for each executive officer is the only fixed component of compensation. All other
compensation, including annual discretionary profit sharing allocation and long-term incentive compensation, is variable in nature.
The majority of the Company’s compensation allocation is weighted towards base salary and annual discretionary profit sharing allocation. In
addition, during fiscal 2021, an aggregate of $386,857 was paid to the named executive officers under the terms of the management incentive compensation
plan and represented a small portion of the executive compensation that was paid to these officers. If we are successful in increasing the overall level of
distributions payable to unitholders, the amounts payable to the named executive officers under the management incentive compensation plan should
increase.
We believe that together all of our compensation components provide a balanced mix of fixed compensation and compensation that is contingent
upon each executive officer’s individual performance and our overall performance. A goal of the compensation program is to provide executive officers
with a reasonable level of security through base salary and benefits, while rewarding them through incentive compensation to achieve business objectives
and create unitholder value over time. We believe that each of our compensation components is important in achieving this goal. Base salaries provide
executives with a base level of monthly income and security. Annual discretionary profit sharing allocations and long-term incentive awards provide an
incentive to our executives to achieve business objectives that increase our financial performance, which creates unitholder value through continuity of, and
increases in, distributions and increases in the market value of the units. In addition, we want to ensure that our compensation programs are appropriately
designed to encourage executive officer retention, which is accomplished through all of our compensation elements.
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Base Salary
The Board of Directors establishes base salaries for the named executive officers based on a number of factors, including:
•
•
•
the historical salaries for services rendered to the Company and responsibilities of the named executive officer;
the salaries of equivalent executive officers at our peer group companies and other data for our industry; and
the prevailing levels of compensation and cost of living in the location in which the named executive officer works.
In determining the initial base compensation payable to individual named executive officers when they are first hired by Star, our starting point is
the historical compensation levels that we have paid to officers performing similar functions over the past few years. We also consider the level of
experience and accomplishments of individual candidates and general labor market conditions, including the availability of candidates to fill a particular
position. When we make adjustments to the base salaries of existing named executive officers, we review the individual’s performance, the value each
named executive officer brings to us and general labor market conditions.
Elements of individual performance considered, among others, without any specific weight given to each element, include business-related
accomplishments during the year, difficulty and scope of responsibilities, effective leadership, experience, expected future contributions to the Company
and difficulty of replacement. While base salary provides a base level of compensation intended to be competitive with the external market, the base salary
for each named executive officer is determined on a subjective basis after consideration of these factors and is not based on target percentiles or other
formal criteria. Although we believe that base salaries for our named executive officers are generally competitive with the external market, we do not use
benchmarking as a fixed criterion to determine base compensation. Rather, after subjectively setting base salaries based on the above factors, we review the
compensation paid to officers holding similar positions at our peer group companies to obtain a general understanding of the reasonableness of base salaries
and other compensation payable to our named executive officers. We also take into account geographic differences for similar positions in the New York
Metropolitan area. While cost of living is considered in determining annual increases, we do not typically provide full cost of living adjustments as salary
increases are constrained by budgetary restrictions and the ability to fund the Company’s current cash needs such as interest expense, maintenance capital,
income taxes and distributions.
Profit Sharing Allocations
We maintain a profit sharing pool for certain employees, including named executive officers, which is equal to approximately 6% of our earnings
before income taxes, depreciation and amortization, excluding items affecting comparability (“adjusted EBITDA”) for the given fiscal year. The annual
discretionary profit sharing allocations paid to the named executive officers are payable from this pool. The size of the pool fluctuates based upon upward
or downwards changes in adjusted EBITDA and the size of an individual award to a named executive officer fluctuates based on the size of the profit
sharing pool and the number of participants in the plan. Depending upon the size of the profit sharing pool, and the number of participants in the plan, the
amount paid to the named executive officers could be more or less.
There are no set formulas for determining the amount payable to our named executive officers from the profit sharing plan. Factors considered by
our CEO and the Board in determining the level of profit sharing allocations generally include, without assigning a particular weight to any factor:
•
•
•
whether or not we achieved certain budgeted goals for the year and any material shortfalls or superior performances relative to expectations.
Under the plan, no profit sharing was payable with respect to fiscal 2021 unless we achieved actual adjusted EBITDA for fiscal 2021 of at
least 70% of the amount of budgeted adjusted EBITDA for fiscal 2021;
the level of difficulty associated with achieving such objectives based on the opportunities and challenges encountered during the year; and
significant transactions or accomplishments for the period not included in the goals for the year.
55
Our CEO takes these factors into consideration as well as the relative contributions of each of the named executive officers to the year’s
performance in developing his recommendations for profit sharing amounts. Based on such assessment, our CEO submits recommendations to the Board of
Directors for the annual profit sharing amounts to be paid to our named executive officers (other than the CEO), for the Board’s review and approval.
Similarly, the Chairman assesses the CEO’s contribution toward meeting the Company’s goals based upon the above factors, and recommends to the Board
of Directors a profit sharing allocation for the CEO it believes to be commensurate with such contribution.
The Board of Directors retains the ultimate discretion to determine whether the named executive officers will receive annual profit sharing
allocations based upon the factors discussed above.
Management Incentive Compensation Plan
In fiscal 2007, following our recapitalization, the Board of Directors adopted the Management Incentive Compensation Plan (the “Plan”) for
certain named employees. Under the Plan, employees who participate shall be entitled to receive a pro rata share (as determined in the manner described
below) of an amount in cash equal to:
•
•
50% of the distributions (“Incentive Distributions”) of Available Cash in excess of the minimum quarterly distribution of $0.0675 per unit
otherwise distributable to Kestrel Heat pursuant to the Partnership Agreement on account of its general partner units; and
50% of the cash proceeds (the “Gains Interest”) which Kestrel Heat shall receive from any sale of its general partner units (as defined in the
Partnership Agreement), less expenses and applicable taxes.
We believe that the Plan provides a long-term incentive to its participants because it encourages Star’s management to increase available cash for
distributions in order to trigger the incentive distributions that are only payable if distributions from available cash exceed certain target distribution levels,
with higher amounts of incentive distributions triggered by higher levels of distributions. Such increases are not sustainable on a consistent basis without
long-term improvements in our operations. In addition, under certain Plan amendments that were adopted in 2012, the participation points of existing plan
participants will vest and become irrevocable over a four year period, provided that the participants continue to be employed by us during the vesting
period. We believe that this will help ensure that the Plan participants, which include our named executive officers, will have a continuing personal interest
in the success of Star.
The pro rata share payable to each participant under the Plan is based on the number of participation points as described under “Fiscal 2021
Compensation Decisions—Management Incentive Compensation Plan.” The amount paid in Incentive Distributions is governed by the Partnership
Agreement and Available Cash (as defined in our Partnership Agreement) is distributed to the holders of our common units and general partner units in the
following manner:
First, 100% to all common units, pro rata, until there has been distributed to each common unit an amount equal to the minimum quarterly
distribution of $0.0675 for that quarter;
Second, 100% to all common units, pro rata, until there has been distributed to each common unit an amount equal to any arrearages in the
payment of the minimum quarterly distribution for prior quarters;
Third, 100% to all general partner units, pro rata, until there has been distributed to each general partner unit an amount equal to the minimum
quarterly distribution;
Fourth, 90% to all common units, pro rata, and 10% to all general partner units, pro rata, until each common unit has received the first target
distribution of $0.1125; and
Finally, 80% to all common units, pro rata, and 20% to all general partner units, pro rata.
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Available Cash, as defined in our Partnership Agreement, generally means all cash on hand at the end of the relevant fiscal quarter less the amount
of cash reserves established by the Board of Directors of our general partner in its reasonable discretion for future cash requirements. These reserves are
established for the proper conduct of our business, including acquisitions, the payment of debt principal and interest and for distributions during the next
four quarters and to comply with applicable law and the terms of any debt agreements or other agreements to which we are subject. The Board of Directors
of our general partner reviews the level of Available Cash each quarter based upon information provided by management.
To fund the benefits under the Plan, Kestrel Heat has agreed to permanently and irrevocably forego receipt of the amount of Incentive Distributions
that are payable to plan participants. For accounting purposes, amounts payable to management under this Plan will be treated as compensation and will
reduce both EBITDA and net income but not adjusted EBITDA. Kestrel Heat has also agreed to contribute to the Company, as a contribution to capital, an
amount equal to the Gains Interest payable to participants in the Plan by the Company. The Company is not required to reimburse Kestrel Heat for amounts
payable pursuant to the Plan.
The Plan is administered by our Chief Financial Officer under the direction of the Board or by such other officer as the Board may from time to
time direct. In general, no payments will be made under the Plan if we are not distributing cash under the Incentive Distributions described above.
Effective as of July 19, 2012, the Board of Directors adopted certain amendments (the “Plan Amendments”) to the Plan. Under the Plan
Amendments, the number and identity of the Plan participants and their participation interests in the Plan have been frozen at the current levels. In addition,
under the Plan Amendments, the plan benefits (to the extent vested) may be transferred upon the death of a participant to his or her heirs. A participant’s
vested percentage of his or her plan benefits will be 100% during the time a participant is an employee or consultant of the Company. Following the
termination of such positions, a participant’s vested percentage shall be equal to 20% for each full or partial year of employment or consultation with us
starting with the fiscal year ended September 30, 2012 (33 1/3% in the case of the Company’s chief executive officer at that time).
We distributed $916,568 in Incentive Distributions under the Plan during fiscal 2021, including payments to the named executive officers of
approximately $386,857. With regard to the Gains Interest, Kestrel Heat has not given any indication that it will sell its general partner units within the next
12 months. Thus the Plan’s value attributable to the Gains Interest currently cannot be determined.
Retirement and Health Benefits
We offer a health and welfare and retirement program to all eligible employees. The named executive officers are generally eligible for the same
programs on the same basis as other employees of Star. We maintain a tax-qualified 401(k) retirement plan that provides eligible employees with an
opportunity to save for retirement on a tax advantaged basis. Under the 401(k) plan, subject to IRS limitations, each participant can contribute from 0% to
60% of compensation.
We make a 4% (or a maximum of 5.5% for participants who had 10 or more years of service at the time our defined benefit plans were frozen and
who have reached the age 55) core contribution of a participant’s compensation and generally can match 2/3 (up to 3.0%) of a participant’s contributions,
subject to IRS limitations.
In addition, we have two frozen defined benefit pension plans that were maintained for all eligible employees, including certain executive officers.
The present value of accumulated benefits under these frozen defined benefit pension plans for certain executive officers is provided in the table labeled
“Pension Plans Pursuant to Which Named Executive Officers Have an Accumulated Benefit But Are Not Currently Accruing Benefits.”
Fiscal 2021 Compensation Decisions
For fiscal 2021, the foregoing elements of compensation were applied as follows:
57
Base Salary
The following table sets forth each named executive officer’s base salary as of October 1, 2021 and the percentage increase in base salary over
October 1, 2020. The current base salaries for our named executive officers were determined based upon the factors discussed under the caption “Base
Salary.” The average percentage increase in base salary for executives in our peer group was approximately 8.2%.
Name
Jeffrey M. Woosnam
Richard F. Ambury
Jeffrey S. Hammond
Joseph R. McDonald
Salary
$ 440,000
$ 444,968
$ 329,676
$ 329,676
Percentage Change
From Prior Year
3.5%
2.5%
3.5%
3.5%
Annual Discretionary Profit Sharing Allocation
Based on the annual performance reviews for our CEO and named executive officers, the Board approved annual profit sharing allocations as
reflected in the “Summary Compensation Table” and notes thereto. For fiscal 2021, the profit sharing amounts reflected in the Summary Compensation
Table are 3% lower than fiscal 2020 for Messrs. Woosnam, Ambury, Hammond and McDonald.
One of our primary performance measures is Adjusted EBITDA, as defined under the Profit Sharing Plan. For fiscal 2021, Adjusted EBITDA (as
calculated under the Profit Sharing Plan) decreased by $3.3 million, or 2.5%, to $126.7 million compared to fiscal 2020. For our peer group, the average
percentage increase in Adjusted EBITDA was 15.3%, but the average total compensation increased by 8.2%.
Another performance measure is acquisitions. During fiscal 2021 the Company acquired two propane and three heating oil dealers that generate
approximately 13 million gallons of home heating oil and propane annually. Messrs. Woosnam, Ambury, Hammond and McDonald were instrumental in
the successful integration of these transactions.
Management Incentive Compensation Plan
In 2012, under the Plan Amendments adopted by the Board, the number and identity of the Plan participants and their participation points were
frozen at the current levels in order to more closely align the interests of Plan participants and unitholders and to give Plan participants a continuing
personal interest in our success. The number of participation points that were previously awarded to the named executive officers was based on the length
of service and level of responsibility of the named executive and our desire to retain the named executive.
In fiscal 2021, $386,857 was paid to the named executive officers under the Plan as indicated in the following chart:
Name
Jeffrey M. Woosnam
Richard F. Ambury
Jeffrey S. Hammond
Joseph R. McDonald
Other Plan Participants (a)
Total
Points
Percentage
Management
Incentive
Payments
60
235
50
120
635
1,100
5.5%
21.4%
4.5%
10.9%
57.7%
100% $
49,917
195,508
41,598
99,834
529,711
916,568
(a)
Includes 300 points (27.3%) that were awarded to Mr. Donovan prior to his retirement as the Company’s President and Chief Executive Officer
effective September 30, 2013.
Retirement and Health Benefits
The named executive officers participate in our retirement and health benefit plans.
58
Employment Contracts and Severance Agreements
Agreement with Richard F. Ambury
We entered into an employment agreement with Mr. Ambury effective as of April 28, 2008. Mr. Ambury will serve as Chief Financial Officer and
Treasurer on an at-will basis. The employment agreement provides for one year’s salary as severance if Mr. Ambury’s employment is terminated without
cause or by Mr. Ambury for good reason.
Agreement with Jeffrey M. Woosnam
We entered into an employment agreement with Mr. Woosnam effective as of June 19, 2019. Mr. Woosnam will serve as President and Chief
Executive Officer of Kestrel Heat on an at-will basis. The employment agreement provides for one year’s salary as severance if Mr. Woosnam’s
employment is terminated without cause or by Mr. Woosnam for good reason.
Change in Control Agreements
Change in control arrangements are included in the employment agreement for Mr. Woosnam, Chief Executive Officer and we have entered into a
Change in Control Agreement with Mr. Ambury, Chief Financial Officer. Under the terms of each agreement, if either of these executive officers is
terminated within 180 days following a change in control (as defined in the agreement), he will be entitled to a payment equal to two times his base annual
salary in the year of such termination plus two times the average amount paid as a bonus and/or as profit sharing during the three years preceding the year
of such termination. The term change in control means the present equity owners of Kestrel Heat and their affiliates collectively cease to beneficially own
equity interests having the voting power to elect at least a majority of the members of the Board of Directors or other governing board of the general
partner or any successor entity. If a change in control were to have occurred and their employment was terminated as of the date of this Report,
Mr. Woosnam would have received a payment of $2,155,333 and Mr. Ambury would have received a payment of $1,970,814.
Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are
providing the following information about the ratio of the annual total compensation, calculated in accordance with the requirements of Item 402(c)(2)(x)
of Regulation S-K of our CEO, Jeffrey M. Woosnam and the annual total compensation of our median employee. For fiscal 2021, our last completed fiscal
year, our CEO’s total compensation was $1,280,140, versus our median employee compensation of $69,028. This reflects a CEO pay ratio of 19:1. We
identified our median compensation employee by examining total compensation paid for fiscal year 2021 to all individuals, excluding Mr. Woosnam, who
were employed by us on September 30, 2021, the last day of our fiscal year based on payroll records. No assumptions, adjustments or estimates were made
in respect of total compensation, except that we annualized the compensation of any employee that was not employed with us for all of fiscal year 2021,
excluding seasonal and temporary employees.
Indemnification Agreements
We have entered into an indemnification agreement with each of our directors and senior executives. These agreements provide for us to, among
other things, indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers, to advance their
expenses incurred as a result of a proceeding as to which they may be indemnified and to cover such person under any directors’ and officers’ liability
insurance policy we choose, in our discretion, to maintain. These indemnification agreements are intended to provide indemnification rights to the fullest
extent permitted under applicable indemnification rights statutes in the State of Delaware and are in addition to any other rights such person may have
under our Partnership Agreement and the limited liability company agreement of our general partner, and applicable law. We believe these indemnification
agreements enhance our ability to attract and retain knowledgeable and experienced executives and independent, non-management directors.
59
Board of Directors Report
The Board of Directors of the general partner of the Company does not have a separate compensation committee. Executive compensation is
determined by the Board of Directors.
The Board of Directors reviewed and discussed with the Company’s management the Compensation Discussion and Analysis contained in this
annual report on Form 10-K. Based on that review and discussion, the Board of Directors recommends that the Compensation Discussion and Analysis be
included in the Company’s annual report on Form 10-K for the year ended September 30, 2021.
Paul A. Vermylen, Jr.
Jeffrey M. Woosnam
Henry D. Babcock
David M. Bauer
C. Scott Baxter
Daniel P. Donovan
Bryan H. Lawrence
William P. Nicoletti
60
Executive Compensation Table
The following table sets forth the annual salary compensation, bonus and all other compensation awards earned and accrued by the named
executive officers in the fiscal year.
Name and
Principal Position
Jeffrey M. Woosnam
President and Chief
Executive Officer (3)
Richard F. Ambury
Chief Financial Officer,
Treasurer and Executive
Vice President
Jeffrey S. Hammond
Chief Operating
Officer (4)
Joseph R. McDonald
Chief Customer
Officer (5)
Fiscal
Year
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
Salary
$ 432,501
$ 402,500
$ 297,769
$ 439,542
$ 428,821
$ 417,872
$ 324,103
$ 313,142
$ 292,384
$ 324,103
$ 313,142
$ 294,933
Bonus
—
—
—
—
—
—
—
—
—
—
—
—
Summary Compensation Table
Non-
Equity
Incentive
Plan
Comp.(1)
$ 750,000
$ 775,000
$ 388,000
$ 595,000
$ 615,000
$ 411,317
Change in
Pension
Value and
Nonqualified
Deferred
Comp.
Earnings (2)
—
—
—
2,073
32,355
58,858
$
$
$
$
$
$
Unit
Awards
—
—
—
—
—
—
Option
Awards
—
—
—
—
—
—
All Other
Comp.(6)
97,639
$
94,956
$
$
87,420
$ 246,158
$ 226,701
$ 206,786
Total
$ 1,280,140
$ 1,272,456
$
773,189
$ 1,282,773
$ 1,302,877
$ 1,094,833
—
—
—
—
—
—
—
—
—
—
—
—
$ 556,000
$ 575,000
$ 288,000
$ 556,000
$ 575,000
$ 288,000
$
$
$
$
$
$
—
—
—
—
—
—
$
89,618
$
84,977
80,727
$
$ 146,555
$ 136,947
$ 126,747
$
969,721
$
973,119
661,111
$
$ 1,026,658
$ 1,025,089
709,680
$
(1)
(2)
(3)
(4)
(5)
(6)
Payable pursuant to the Company’s profit sharing pool, which is described under “Compensation Discussion and Analysis. – Profit Sharing
Allocation.”
We have two frozen defined benefit pension plans that we sometimes refer to in this Report as the Petro defined benefit pension plan and the
Meenan defined benefit pension plan, where participants are not accruing additional benefits. Mr. Ambury also participated in a tax-qualified
supplemental employee retirement plan which, prior to being frozen in 1997, represented contributions to an employee plan to compensate for a
reduction in certain benefits prior to 1997. Included in Mr. Ambury’s amounts for the Change in Pension Value and Nonqualified Deferred Comp.
Earnings are $333, $5,197, and $9,455 for fiscal years 2021, 2020, and 2019 respectively, for the actuarial changes in the value of his frozen
supplemental employee retirement plan. The change in all the named executive’s pension values (including the supplemental employee retirement
plan) are non-cash, and reflect normal adjustments resulting from changes in discount rates and government mandated mortality tables.
Mr. Woosnam was appointed President and Chief Executive Officer on March 18, 2019.
Mr. Hammond was appointed Chief Operating Officer on March 18, 2019.
Mr. McDonald was appointed Chief Customer Officer on March 18, 2019.
All other compensation is subdivided as follows:
Name
Jeffrey M. Woosnam
Richard F. Ambury
Jeffrey S. Hammond
Joseph R. McDonald
Management
Incentive
Compensation Plan
Company Match and
Core Contribution to
401(K) Plan
Car Allowance or Monetary
Value for Personal Use of
Company Owned Vehicle
$
$
$
$
49,917 $
195,508 $
41,598 $
99,834 $
61
17,782 $
21,850 $
17,762 $
16,824 $
29,940 $
28,800 $
30,258 $
29,897 $
Total
97,639
246,158
89,618
146,555
Grants of Plan-Based Awards
Estimated Future Payouts
Equity Incentive Plan Awards (1)
Target
($) (2)
Threshold
($)
Maximum
($)
Grant
Date (1)
Estimated Future Payouts
Under Equity Incentive Plan
Target
(#)
Threshold
(#)
Maximum
(#)
All Other
Stocks
Awards:
Number of
Shares of
Stock or
Units (#)
All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
Exercise or
Base Price of
Option
Awards
($/Sh)
Grant Date
Fair Value
of Stock
and
Option
Awards
7/21/09
— $ 750,000
—
— —
—
—
—
—
7/21/09
— $ 595,000
—
— —
—
—
—
—
7/21/09
— $ 556,000
—
— —
—
—
—
—
7/21/09
— $ 556,000
—
— —
—
—
—
—
—
—
—
—
Name
Jeffrey M.
Woosnam
Richard F.
Ambury
Jeffrey S.
Hammond
Joseph R.
McDonald
(1)
(2)
On July 21, 2009, the Board of Directors authorized the continuance of the annual profit sharing plan, subject to its power to terminate the plan at
any time. Profit sharing allocations are described under “Compensation Philosophy and Policies—Profit Sharing Allocations.”
The annual profit sharing plan does not provide for thresholds or maximums; the amounts listed represent the actual awards to the named executive
officers for fiscal 2021.
Outstanding Equity Awards at Fiscal Year-End
None.
Option Exercises and Stock Vested
None.
Pension Plans Pursuant to Which Named Executive Officers Have an Accumulated Benefit But Are Not Currently Accruing Benefits
Name
Richard F. Ambury (1)
Plan Name
Retirement Plan
Supplemental Employee Retirement Plan
Number of Years
Credited Service
Present Value of
Accumulated Benefit
Payments During Last
Fiscal Year
13 $
— $
331,647 $
$
63,470
—
—
(1)
The named executive officer has accumulated benefits in the tax-qualified Petro defined benefit pension plan that was frozen in 1997. Mr. Ambury
also participated in a tax-qualified supplemental employee retirement plan which, prior to being frozen in 1997, represented contributions to an
employee plan to compensate for a reduction in certain benefits prior to 1997. No other named executives were participants in any of these plans.
Each year, the named executive officer’s accumulated benefits are actuarially calculated generally based on the credited years of service and each
employee’s compensation at the time the plan was frozen. The present value of these amounts are the present value of a single life annuity
generally payable at later or normal retirement age, adjusted for changes in discount rates and government mandated mortality tables. See Note 14
—Employee Benefit Plans, to Star’s Consolidated Financial Statements, for the material assumptions applied in quantifying the present value of the
accumulated benefits of these frozen plans.
62
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
None.
Potential Payments Upon Termination
If Mr. Woosnam’s employment is terminated for reasons other than for cause or if Mr. Woosnam terminates his employment for good reason, he
will be entitled to receive one-year’s salary as severance, except in the case of a termination following a change in control which is discussed above under
“Change in Control Agreements.” For 12 months following the termination of his employment, Mr. Woosnam is prohibited from competing with the
Company or from becoming involved either as an employee, as a consultant or in any other capacity, in the sale of heating oil or propane on a retail basis.
If Mr. Ambury’s employment is terminated for reasons other than cause or if Mr. Ambury terminates his employment for a good reason, he will be
entitled to receive a severance payment of one year’s salary except in the case of a termination following a change in control which is discussed above
under “Change in Control Agreements.” For 12 months following the termination of his employment, Mr. Ambury is prohibited from competing with the
Company or from becoming involved either as an employee, as a consultant or in any other capacity, in the sale of heating oil or propane on a retail basis.
The amounts shown in the table below assume that the triggering event for each named executive officer’s termination or change in control
payment was effective as of the date of this Report based upon their historical compensation arrangements as of such date. The actual amounts to be paid
out can only be determined at the time of such named executive officer’s termination of employment or Star’s change of control.
The employment agreements of the foregoing officers also require that they not reveal confidential information of the Company within 12 months
following the termination of their employment.
Name
Jeffrey M. Woosnam
Richard F. Ambury
Compensation of Directors
Name
Paul A. Vermylen, Jr. (1)
Daniel P. Donovan (4)
Henry D. Babcock (5)
David M. Bauer (5)
C. Scott Baxter (5)
Bryan H. Lawrence (6)
William P. Nicoletti (7)
Fees
Earned
or Paid
in Cash
130,500
70,917
90,500
90,500
90,500
—
102,583
$
$
$
$
$
$
$
Unit
Awards
—
—
—
—
—
—
—
(1)
Mr. Vermylen is non-executive Chairman of the Board.
Potential Payments
Upon Termination
Potential Payments
Following
a Change of Control
$
$
440,000 $
444,968 $
2,155,333
1,970,814
Director Compensation Table - Fiscal Year 2021
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings (2)
Non-Equity
Incentive
Plan
Option
Awards
All Other
Compensation
(3)
Compensation
—
—
—
—
—
—
—
$
$
$
$
$
$
$
10,785
2,461
—
—
—
—
—
$
$
$
$
$
$
$
69,527
312,696
—
—
—
—
—
$
$
$
$
$
$
$
Total
210,812
386,074
90,500
90,500
90,500
—
102,583
—
—
—
—
—
—
—
63
(2)
(3)
(4)
(5)
(6)
(7)
Mr. Vermylen and Mr. Donovan participate in one of our frozen defined benefit pension plans. Participants are currently not accruing additional
benefits under the frozen plan. The change in the pension value reflects normal non-cash adjustments resulting from changes in discount rates and
government mandated mortality tables.
Mr. Vermylen and Mr. Donovan reached the frozen defined benefit pension plan full retirement age in fiscal year 2012 and 2011, respectively, and
started receiving pension payments.
The amount included for Mr. Donovan in all other compensation represents $249,585 for amounts paid to him under the management incentive
compensation plan, and $63,111 for pension payments.
Mr. Babcock, Mr. Bauer and Mr. Baxter are Audit Committee members.
Mr. Lawrence has chosen not to receive any fees as a director of the general partner of Star.
Mr. Nicoletti is Chairman of the Audit Committee.
Each non-management director receives an annual fee of $61,000 plus $1,500 for each regular and telephonic meeting attended. The Chairman of
the Audit Committee receives an annual fee of $24,400 while other Audit Committee members receive an annual fee of $12,200. Each member of the
Audit Committee receives $1,500 for every regular and telephonic meeting attended. The non-executive Chairman of the Board receives an annual fee of
$120,000.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership as of November 30, 2021 of common units and general partner units by:
(1) Kestrel and certain beneficial owners;
(2) each of the named executive officers and directors of Kestrel Heat;
(3) all directors and executive officers of Kestrel Heat as a group; and
(4) each person the Company knows to hold 5% or more of the Company’s units.
Except as indicated, the address of each person is c/o Star Group, L.P. at 9 West Broad, Street, Suite 310, Stamford, Connecticut 06902.
Name
Kestrel (a)
Paul A. Vermylen, Jr. (b)
Henry D. Babcock (c)
William P. Nicoletti
Bryan H. Lawrence (d)
C. Scott Baxter
David M. Bauer (e)
Daniel P. Donovan
Richard F. Ambury (f)
Jeffrey M. Woosnam
Joseph R. McDonald
Jeffrey S. Hammond
All officers and directors and Kestrel Heat, LLC as a group
(12 persons)
Bandera Partners, LLC (g)
Common Units
General Partner Units
Number
Percentage
Number
Percentage
—
1,345,983
104,121
35,506
1,101,848
—
1,254,662
25,000
38,390
10,000
6,500
5,000
3,927,010
3,314,115
325,729
100.00%
*
3.49%
*
*
2.85%
*
3.25%
*
*
*
*
*
10.17%
325,729
100.00%
8.58%
(a)
(b)
Includes 325,729 general partner units owned by Kestrel Heat. In November 2021, Kestrel Heat made an in-kind distribution of 500,000 common
units, representing approximately 1% of the issued and outstanding common units, to Kestrel, which, in turn, made an in-kind distribution of such
units, pro rata, to its members.
Includes 218,520 Common Units held by The Robin C. Vermylen 2016 Irrevocable Trust, with respect to which Mr. Vermylen is a trustee of the
trust and a beneficiary of the trust; and 852,619 Common Units held by
64
The Paul A. Vermylen, Jr. 2015 Irrevocable Trust, with respect to which Mr. Vermylen’s spouse is a beneficiary of the trust and Mr. Vermylen is the
settlor of the trust.
Includes 94,121 Common Units owned by White Hill Trust, with respect to which Mr. Babcock’s stepson and son-in-law are the trustees and
Mr. Babcock’s wife is the primary beneficiary.
Does not include 840,957 Common Units owned by Yorktown Energy Partners VI, L.P. (“Yorktown VI”). Mr. Lawrence is a member and manager
of Yorktown VI Associates LLC. The general partner of Yorktown VI Company LP, the general partner of Yorktown VI. Mr. Lawrence does not
have sole or shared voting or investment power within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934 with respect to the
Common Units held by Yorktown VI and disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.
All Common Units are owned by Lubar Equity Fund, LLC. Mr. Bauer owns a minority interest in Lubar Equity Fund, LLC and is Chief Investment
Officer of Lubar & Co. Incorporated, the sole manager of Lubar Equity Fund, LLC. While Mr. Bauer serves on the investment committee of Lubar
& Co., Inc., he does not have sole or shared voting or investment power within the meaning of Rule 13d-3 of the Securities and Exchange Act of
1934 with respect to the Common Units held by Lubar Equity Fund, LLC and disclaims beneficial ownership of such securities except to the extent
of his pecuniary interest therein.
Common Units are owned by the Richard F. Ambury 2013 Revocable Living Trust, with respect to which Mr. Ambury is the trustee.
According to a Form 13F filed by Bandera Partners, LLC with the SEC on November 12, 2021.
Amount represents less than 1%.
(c)
(d)
(e)
(f)
(g)
*
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Star has a written conflict of interest policy and procedure that requires all officers, directors and employees to report to senior corporate
management or the board of directors, all personal, financial or family interest in transactions that involve the individual and the Star. In addition, our
Governance Guidelines provide that any monetary arrangement between a director and his or her affiliates (including any member of a director’s immediate
family) and the Company or any of its affiliates for goods or services shall be subject to approval by the full Board of Directors.
The general partner does not receive any management fee or other compensation for its management of Star. The general partner is reimbursed for
all expenses incurred on behalf of the Star, including the cost of compensation, that are properly allocable to Star. Our Partnership Agreement provides that
the general partner shall determine the expenses that are allocable to Star in any reasonable manner determined by the general partner in its sole discretion.
In addition, the general partner and its affiliates may provide services to the Star for which a reasonable fee would be charged as determined by the general
partner.
Kestrel has the ability to elect the Board of Directors of Kestrel Heat, including Messrs. Vermylen, Bauer and Lawrence. Messrs. Vermylen, Bauer
and Lawrence are also members of the board of managers of Kestrel and, either directly or through affiliated entities, own equity interests in Kestrel.
Kestrel owns all of the issued and outstanding membership interests of Kestrel Heat.
Policies Regarding Transactions with Related Persons
Our Code of Business Conduct and Ethics, Partnership Governance Guidelines and Partnership Agreement set forth policies and procedures with
respect to transactions with persons affiliated with the Company and the resolution of conflicts of interest, which taken together provide the Company with
a framework for the review and approval of “transactions” with “related persons” as such terms are defined in Item 404 of Regulation S-K.
For the years ended September 30, 2021, 2020, and 2019, Star had no related party transactions or agreements pursuant to Item 404 of Regulation
S-K.
65
Our Code of Business Conduct and Ethics applies to our directors, officers, employees and their affiliates. It deals with conflicts of interest (e.g.,
transactions with the Company), confidential information, use of Star assets, business dealings, and other similar topics. The Code requires officers,
directors and employees to avoid even the appearance of a conflict of interest and to report potential conflicts of interest to the Company’s Senior Vice
President Accounting or Director of Internal Audit.
Our Partnership Governance Guidelines provide that any monetary arrangement between a director and his or her affiliates (including any member
of a director’s immediate family) and the Company or any of its affiliates for goods or services shall be subject to approval by the full Board of Directors.
Although the Partnership Governance Guidelines by their terms only apply to directors the Board intends to apply this requirement to officers and
employees and their affiliates.
To the extent that the Board determines that it would be in the best interests of the Company to enter into a transaction with a related person, the
Board intends to utilize the procedures set forth in the Partnership Agreement for the review and approval of potential conflicts of interest. Our Partnership
Agreement provides that whenever a potential conflict of interest exists or arises between the general partner or any of its Affiliates (including its directors,
executive officers and controlling members), on the one hand, and the Company or any partner, on the other hand, any resolution or course of action in
respect of such conflict of interest shall be permitted and deemed approved by all partners, and shall not constitute a breach of the Partnership Agreement,
of any agreement contemplated therein, or of any duty stated or implied by law or equity, if the resolution or course of action is, or by operation of the
Partnership Agreement is deemed to be, fair and reasonable to the Company.
Any conflict of interest and any resolution of such conflict of interest shall be conclusively deemed fair and reasonable to the Company if such
conflict of interest or resolution is (i) approved by a committee of independent directors (the “Conflicts Committee”), (ii) on terms no less favorable to the
Company than those generally being provided to or available from unrelated third parties or (iii) fair to the Company, taking into account the totality of the
relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Company).
The general partner (including the Conflicts Committee) is authorized in connection with its determination of what is “fair and reasonable” to the
Company and in connection with its resolution of any conflict of interest to consider:
(A)
the relative interests of any party to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interest;
(B)
(C)
(D)
any customary or accepted industry practices and any customary or historical dealings with a particular person;
any applicable generally accepted accounting practices or principles; and
such additional factors as the general partner (including the Conflicts Committee) determines in its sole discretion to be relevant, reasonable
or appropriate under the circumstances.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table represents the aggregate fees for professional audit services rendered by KPMG LLP including fees for the audit of our annual
financial statements for the fiscal years 2021 and 2020, and for fees billed and accrued for other services rendered by KPMG LLP (in thousands).
Audit Fees (1)
Tax Fees (2)
Total Fees
2021
2020
2,425 $
393
2,818 $
2,208
290
2,498
$
$
(1)
Audit fees were for professional services rendered in connection with audits and quarterly reviews of the consolidated financial statements of
the Company.
66
(2)
Tax fees related to services for tax consulting and tax compliance.
Audit Committee: Pre-Approval Policies and Procedures. At its regularly scheduled and special meetings, the Audit Committee of the Board of
Directors considers and pre-approves any audit and non-audit services to be performed by the Company’s independent accountants. The Audit Committee
has delegated to its chairman, an independent member of the Company’s Board of Directors, the authority to grant pre-approvals of non-audit services
provided that the service(s) shall be reported to the Audit Committee at its next regularly scheduled meeting. On June 18, 2003, the Audit Committee
adopted its pre-approval policies and procedures. Since that date, there have been no audit or non-audit services rendered by the Company’s principal
accountants that were not pre-approved.
67
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements—See “Index to Consolidated Financial Statements and Financial Statement Schedule” set forth on page F-1.
2. Financial Statement Schedule—See “Index to Consolidated Financial Statements and Financial Statement Schedule” set forth on page F-1.
PART IV
3. Exhibits—See “Index to Exhibits” set forth on the following page.
68
Exhibit
Number
3.1
3.2
3.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
INDEX TO EXHIBITS
Description
Amended and Restated Certificate of Limited Partnership (Incorporated by reference to an exhibit to the Registrant’s
Quarterly Report on Form 10-Q filed with the Commission on May 9, 2006.)
Certificate of Amendment to Amended and Restated Certificate of Limited Partnership (Incorporated by reference to an
exhibit to the Registrant’s Current Report on Form 8-K with the Commission on October 27, 2017.)
Third Amended and Restated Agreement of Limited Partnership (Incorporated by reference to an exhibit to the
Registrant’s Current Report on Form 8-K with the Commission on November 6, 2017.)
Letter Agreement and general release dated March 7, 2005 between Star Gas Partners L.P. and Irik P. Sevin†
(Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on
March 8, 2005.)
Management Incentive Compensation Plan† (Incorporated by reference to an exhibit to the Registrant’s Current Report on
Form 8-K with the Commission on July 21, 2006.)
Amended and Restated Management Incentive Compensation Plan† (Incorporated by reference to an exhibit to the
Registrant’s Current Report on Form 8-K with the Commission on July 20, 2012.)
Form of Indemnification Agreement for Officers and Directors (Incorporated by reference to an exhibit to the Registrant’s
Current Report on Form 8-K with the Commission on July 21, 2006.)
Form of Amendment No. 1 to Indemnification Agreement (Incorporated by reference to an exhibit to the Registrant’s
Current Report on Form 8-K with the Commission on October 23, 2006.)
Modification of Profit Sharing Plan† (Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form
10-K filed with the Commission on December 10, 2014.)
Change in Control Agreement dated December 4, 2007 between Star Gas Partners, L.P. and Daniel P. Donovan†
(Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on
December 7, 2007.)
Change in Control Agreement dated December 4, 2007 between Star Gas Partners, L.P. and Richard F. Ambury†
(Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on
December 7, 2007.)
Employment Agreement dated April 28, 2008 between Star Gas Partners, L.P. and Richard Ambury† (Incorporated by
reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on December 10,
2008.)
Agreement dated November 2, 2009 between Star Gas Partners, L.P. and Richard G. Oakley† (Incorporated by reference
to an exhibit to the Registrant’s Current Report on Form 8-K dated November 3, 2009.)
Letter Agreement, dated as of July 22, 2013, between the Partnership and Steven Goldman regarding Change of Control†
(Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K dated July 23, 2013.)
First Amendment to Letter Agreement, dated as of September 30, 2015, between the Partnership and Dan Donovan
(Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K dated October 2, 2015.)
69
Exhibit
Number
10.13
10.14
10.15
10.16
10.17
10.18
10.19
14
21*
31.1*
31.2*
32.1*
32.2*
Description
Letter Agreement, dated as of December 6, 2016, between the Partnership and Steven Goldman regarding employment†
(Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on
December 7, 2016.)
Letter Agreement, dated as of June 19, 2019, between the Company and Jeffrey M. Woosnam regarding employment
(Incorporated by reference to an exhibit to Registrant’s Current Report on Form 8-K dated June 21, 2019.)
Fifth Amended and Restated Credit Agreement, dated as of December 4, 2019 (Incorporated by reference to an exhibit to
the Registrant’s Annual Report on Form 10-K filed with the Commission on December 5, 2019.)
Fifth Amended and Restated Pledge and Security Agreement, dated as of December 4, 2019 (Incorporated by reference to
an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on December 5, 2019.)
Waiver to the Fifth Amended and Restated Credit Agreement, dated as of November 5, 2020. (Incorporated by reference
to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on December 7, 2020.)
Unit Purchase Agreement, dated as of December 9, 2020, between the Company and Moab Partners, L.P. (Incorporated
by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated February 3, 2021.)
Unit Purchase Agreement, dated as of January 27, 2021, between the Company and Moab Partners, L.P. (Incorporated by
reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q dated February 3, 2021.)
Code of Business Conduct and Ethics (Incorporated by reference to an exhibit to the Registrant’s Current Report on Form
8-K dated November 14, 2014.)
Subsidiaries of the Registrant (Filed herewith.)
Certification of Chief Executive Officer, Star Group, L.P., pursuant to Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer, Star Group, L.P., pursuant to Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exibit 101)
*
†
Filed Herewith
Employee compensation plan.
70
Pursuant to the requirements of the Securities Exchange Act of 1934, the general partner has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized this 8th day of December, 2021:
SIGNATURE
STAR GROUP, L.P.
By:
By:
KESTREL HEAT, LLC (General Partner)
/s/ Jeffrey M. Woosnam
Jeffrey M. Woosnam
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on
the date indicated:
Signature
/s/ Jeffrey M. Woosnam
Jeffrey M. Woosnam
/s/ Richard F. Ambury
Richard F. Ambury
/s/ Cory A. Czekanski
Cory A. Czekanski
/s/ Paul A. Vermylen, Jr.
Paul A. Vermylen, Jr.
/s/ Henry D. Babcock
Henry D. Babcock
/s/ C. Scott Baxter
C. Scott Baxter
/s/ David M. Bauer
David M. Bauer
/s/ Daniel P. Donovan
Daniel P. Donovan
/s/ Bryan H. Lawrence
Bryan H. Lawrence
/s/ William P. Nicoletti
William P. Nicoletti
Title
President and Chief Executive Officer and Director Kestrel
Heat, LLC
Chief Financial Officer, Executive Vice President, Treasurer
and Secretary (Principal
Financial Officer) Kestrel Heat, LLC
Vice President—Controller (Principal
Accounting Officer) Kestrel Heat, LLC
Date
December 8, 2021
December 8, 2021
December 8, 2021
Non-Executive Chairman of the Board and Director Kestrel
Heat, LLC
December 8, 2021
Director Kestrel Heat, LLC
December 8, 2021
Director Kestrel Heat, LLC
December 8, 2021
Director Kestrel Heat, LLC
December 8, 2021
Director Kestrel Heat, LLC
December 8, 2021
Director Kestrel Heat, LLC
December 8, 2021
Director Kestrel Heat, LLC
December 8, 2021
71
STAR GROUP, L.P. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Part II Financial Information:
Item 8—Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2021 and September 30, 2020
Consolidated Statements of Operations for the years ended September 30, 2021, September 30, 2020 and September 30, 2019
Consolidated Statements of Comprehensive Income for the years ended September 30, 2021, September 30, 2020 and
September 30, 2019
Consolidated Statements of Partners’ Capital for the years ended September 30, 2021, September 30, 2020 and
September 30, 2019
Consolidated Statements of Cash Flows for the years ended September 30, 2021, September 30, 2020 and September 30, 2019
Notes to Consolidated Financial Statements
Schedules for the years ended September 30, 2021, September 30, 2020 and September 30, 2019
I. Condensed Financial Information of Registrant
II. Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial
statements or the notes therein.
Page
F-2 – F-3
F-4
F-5
F-6
F-7
F-8
F-9 – F-39
F-40 – F-42
F-43
F-1
Report of Independent Registered Public Accounting Firm
To the Unitholders of Star Group, L.P. and Board of Directors of Kestrel Heat, LLC:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Star Group, L.P. and subsidiaries (the Company) as of September 30, 2021 and 2020, the
related consolidated statements of operations, comprehensive income, partners’ capital, and cash flows for each of the years in the three-year period ended
September 30, 2021, and the related notes and financial statement schedules I and II (collectively, the consolidated financial statements). We also have
audited the Company’s internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2021,
in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of September 30, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance
F-2
with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of self-insurance liabilities
As discussed in note 2 to the consolidated financial statements, the Company self-insures for a number of risks, including a portion of workers’
compensation, auto, general liability and medical claims. Self-insurance liabilities are established and periodically evaluated, based upon expectations as to
what the ultimate liability may be for outstanding claims using developmental factors based upon historical claim experience and other actuarial
assumptions, with support from a qualified third-party actuary. The balance of the self-insurance liabilities, as of September 30, 2021 amounted to $80.6
million as shown in note 12 to the consolidated financial statements.
We identified the evaluation of the self-insurance liabilities for worker’s compensation, auto, and general liability claims as a critical audit matter.
Specialized skill and knowledge were necessary to evaluate the actuarial models and key assumptions used to determine the liabilities. Additionally, the
evaluation of key assumptions used to estimate the liabilities required complex auditor judgment due to the degree of measurement uncertainty. The key
assumptions used include paid and incurred loss development factors, expected loss rates and the selection of the estimated ultimate losses among the
estimates derived from the actuarial models.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness
of certain internal controls over the Company’s self-insurance process, including controls related to review of the actuarial models and the development and
selection of the key assumptions used in the actuarial calculations. We involved our actuarial professionals with specialized knowledge who assisted in:
— Assessing the actuarial models used by the Company for consistency with generally accepted actuarial standards.
— Evaluating the key assumptions underlying the Company’s actuarial estimates by developing an independent expectation of the self-insurance
liabilities and comparing the expectation to the amounts recorded by the Company.
— Evaluating the Company’s ability to estimate self-insurance liabilities by comparing its historical estimates with actual incurred losses and paid
losses.
/s/ KPMG LLP
We have served as the Company’s auditor since 1995.
Stamford, Connecticut
December 8, 2021
F-3
STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
Current assets
Cash and cash equivalents
Receivables, net of allowance of $4,779 and $6,121, respectively
Inventories
Fair asset value of derivative instruments
Prepaid expenses and other current assets
Assets held for sale
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Intangibles, net
Restricted cash
Captive insurance collateral
Deferred charges and other assets, net
Total assets
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable
Liabilities held for sale
Revolving credit facility borrowings
Fair liability value of derivative instruments
Current maturities of long-term debt
Current portion of operating lease liabilities
Accrued expenses and other current liabilities
Unearned service contract revenue
Customer credit balances
Total current liabilities
Long-term debt
Long-term operating lease liabilities
Deferred tax liabilities, net
Other long-term liabilities
Partners’ capital
Common unitholders
General partner
Accumulated other comprehensive loss, net of taxes
Total partners’ capital
Total liabilities and partners’ capital
September 30,
2021
2020
$
$
$
$
4,767
99,680
61,183
26,222
30,140
—
221,992
99,123
95,839
253,398
95,474
250
69,933
17,854
853,863
37,291
—
8,618
—
17,621
16,446
121,221
56,972
86,828
344,997
92,385
84,019
29,014
25,244
295,063
(2,821)
(14,038)
278,204
853,863
$
$
$
$
56,911
83,594
50,256
—
29,554
6,030
226,345
93,495
99,776
240,327
90,293
250
69,787
18,343
838,616
30,827
1,265
—
11,437
13,000
19,139
127,286
58,430
83,471
344,855
109,805
85,908
17,227
25,001
273,283
(2,506)
(14,957)
255,820
838,616
See accompanying notes to consolidated financial statements.
F-4
STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Sales:
Product
Installations and services
Total sales
Cost and expenses:
Cost of product
Cost of installations and services
(Increase) decrease in the fair value of derivative instruments
Delivery and branch expenses
Depreciation and amortization expenses
General and administrative expenses
Finance charge income
Operating income
Interest expense, net
Amortization of debt issuance costs
Other loss, net
Income before income taxes
Income tax expense
Net income
General Partner’s interest in net income
Limited Partners’ interest in net income
Basic and diluted income per Limited Partner Unit (1):
Weighted average number of Limited Partner units outstanding:
Basic and Diluted
(1)
See Note 19 - Earnings Per Limited Partner Units.
2021
Years Ended September 30,
2020
2019
$
$
1,204,319
292,767
1,497,086
$
1,186,026
281,432
1,467,458
1,466,045
287,827
1,753,872
754,622
264,810
(36,138)
327,910
33,485
25,096
(2,899)
130,200
(7,816)
(972)
—
121,412
33,675
87,737
689
87,048
$
$
738,714
253,724
2,755
323,373
34,623
25,072
(3,771)
92,968
(9,702)
(999)
(5,724)
76,543
20,625
55,918
377
55,541
$
$
998,559
267,607
25,113
369,033
32,901
28,414
(5,105)
37,350
(11,164)
(1,032)
—
25,154
7,517
17,637
95
17,542
1.82
$
1.07
$
0.35
40,553
45,656
50,814
$
$
$
See accompanying notes to consolidated financial statements.
F-5
STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income:
Unrealized gain on pension plan obligation
Tax effect of unrealized gain on pension plan obligation
Unrealized gain (loss) on captive insurance collateral
Tax effect of unrealized gain (loss) on captive insurance collateral
Unrealized gain (loss) on interest rate hedge
Tax effect of unrealized gain (loss) on interest rate hedge
Total other comprehensive income
Total comprehensive income
2021
Years Ended September 30,
2020
2019
$
87,737
$
55,918
$
17,637
735
(217)
(963)
203
1,575
(414)
919
88,656
$
2,876
(782)
916
(190)
(1,193)
317
1,944
57,862
$
1,170
(320)
2,231
(473)
(1,993)
525
1,140
18,777
$
See accompanying notes to consolidated financial statements.
F-6
STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
Years Ended September 30, 2021, 2020 and 2019
Number of Units
(in thousands)
Balance as of September 30, 2018
Common
53,088
Impact of adoption of ASU No. 2014-09
Net income
Unrealized gain on pension plan obligation
Tax effect of unrealized gain on pension plan obligation
Unrealized gain on captive insurance collateral
Tax effect of unrealized gain on captive insurance collateral
Unrealized loss on interest rate hedge
Tax effect of unrealized loss on interest rate hedge
Distributions
Retirement of units
Balance as of September 30, 2019
Net income
Unrealized gain on pension plan obligation
Tax effect of unrealized gain on pension plan obligation
Unrealized gain on captive insurance collateral
Tax effect of unrealized gain on captive insurance collateral
Unrealized loss on interest rate hedge
Tax effect of unrealized loss on interest rate hedge
Distributions
Retirement of units
Balance as of September 30, 2020
Net income
Unrealized gain on pension plan obligation
Tax effect of unrealized gain on pension plan obligation
Unrealized loss on captive insurance collateral
Tax effect of unrealized loss on captive insurance collateral
Unrealized gain on interest rate hedge
Tax effect of unrealized gain on interest rate hedge
Distributions
Retirement of units
Balance as of September 30, 2021
(5,403)
47,685
(4,357)
43,328
(4,282)
39,046
General
Partner
Common
326 $ 329,129 $
9,164
17,542
—
—
—
—
—
—
(24,773)
(51,353)
326 $ 279,709 $
55,541
—
—
—
—
—
—
(23,536)
(38,431)
326 $ 273,283 $
87,048
—
—
—
—
—
—
(22,444)
(42,824)
326 $ 295,063 $
General
Partner
Accum. Other
Comprehensive
Income (Loss)
Total
Partners’
Capital
(1,303) $
60
95
—
—
—
—
—
—
(820)
—
(1,968) $
377
—
—
—
—
—
—
(915)
—
(2,506) $
689
—
—
—
—
—
—
(1,004)
—
(2,821) $
(18,041) $ 309,785
—
9,224
— 17,637
1,170
1,170
(320)
(320)
2,231
2,231
(473)
(473)
(1,993)
(1,993)
525
525
— (25,593)
— (51,353)
(16,901) $ 260,840
— 55,918
2,876
2,876
(782)
(782)
916
916
(190)
(190)
(1,193)
(1,193)
317
317
— (24,451)
— (38,431)
(14,957) $ 255,820
— 87,737
735
735
(217)
(217)
(963)
(963)
203
203
1,575
1,575
(414)
(414)
— (23,448)
— (42,824)
(14,038) $ 278,204
See accompanying notes to consolidated financial statements.
F-7
STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2021
Years Ended September 30,
2020
2019
$
87,737 $
55,918 $
17,637
(in thousands)
Cash flows provided by (used in) operating activities:
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
(Increase) decrease in fair value of derivative instruments
Depreciation and amortization
(Recovery) provision for losses on accounts receivable
Change in deferred taxes
Other loss, net
Changes in operating assets and liabilities net of amounts related to acquisitions:
(Increase) decrease in receivables
(Increase) decrease in inventories
Decrease in other assets
Increase (decrease) in accounts payable
Increase in customer credit balances
(Decrease) increase in other current and long-term liabilities
Net cash provided by operating activities
Cash flows provided by (used in) investing activities:
Capital expenditures
Proceeds from sales of fixed assets
Proceeds from sale of propane assets
Purchase of investments
Acquisitions
Net cash used in investing activities
Cash flows provided by (used in) financing activities:
Revolving credit facility borrowings
Revolving credit facility repayments
Proceeds from term loan
Loan repayments
Distributions
Unit repurchases
Customer retainage payments
Payments of debt issuance costs
Net cash used in financing activities
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
$
(36,138)
34,457
(248)
11,361
—
(15,171)
(11,472)
1,529
6,939
3,054
(13,171)
68,877
(15,083)
424
6,093
(1,052)
(40,708)
(50,326)
75,154
(66,536)
—
(13,000)
(23,448)
(42,824)
(29)
(12)
(70,695)
(52,144)
57,161
5,017 $
2,755
35,622
3,441
(3,544)
5,724
34,366
14,588
11,627
(3,199)
14,775
3,595
175,668
(14,127)
631
—
(10,417)
(4,228)
(28,141)
90,202
(151,702)
130,000
(99,000)
(24,451)
(38,431)
(514)
(1,619)
(95,515)
52,012
5,149
57,161 $
25,113
33,933
9,541
(5,126)
—
10,137
(6,306)
10,146
(2,918)
3,615
1,610
97,382
(11,301)
1,097
—
(11,058)
(60,904)
(82,166)
139,331
(79,331)
—
(7,500)
(25,593)
(51,353)
(357)
(45)
(24,848)
(9,632)
14,781
5,149
See accompanying notes to consolidated financial statements.
F-8
STAR GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 September 30, 2021, had outstanding 39.0 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”).
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 September 30, 2021 served
approximately 422,200 full service residential and commercial home heating oil and propane customers and 71,100 customers on a delivery
only basis. We also sell gasoline and diesel fuel to approximately 26,700 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 18,300 service contracts for natural gas and other heating systems.
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 $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 13—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.
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, unrealized gain (loss) on available-for-sale
investments, unrealized gain (loss) on interest rate hedge and the corresponding tax effects.
Use of Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
F-9
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Refer to Note 3 – Revenue Recognition for revenue recognition accounting policies. Sales of petroleum products are recognized at the time of
delivery to the customer and sales of heating and air conditioning equipment are recognized upon completion of installation. Revenue from repairs,
maintenance and other services are recognized upon completion of the service. Payments received from customers for equipment service contracts are
deferred and amortized into income over the terms of the respective service contracts, on a straight-line basis, which generally do not exceed one year. To
the extent that the Company anticipates that future costs for fulfilling its contractual obligations under its service maintenance contracts will exceed the
amount of deferred revenue currently attributable to these contracts, the Company recognizes a loss in current period earnings equal to the amount that
anticipated future costs exceed related deferred revenues.
Cost of Product
Cost of product includes the cost of home heating oil, diesel, propane, kerosene, gasoline, throughput costs, barging costs, option costs, and
realized gains/losses on closed derivative positions for product sales.
Cost of Installations and Services
Cost of installations and services includes equipment and material costs, wages and benefits for equipment technicians, dispatchers and other
support personnel, subcontractor expenses, commissions and vehicle related costs.
Delivery and Branch Expenses
Delivery and branch expenses include wages and benefits and department related costs for drivers, dispatchers, garage mechanics, customer
service, sales and marketing, compliance, credit and branch accounting, information technology, vehicle and property rental costs, insurance, weather
hedge contract costs and recoveries, and operational management and support.
General and Administrative Expenses
General and administrative expenses include property costs, wages and benefits (including profit sharing) and department related costs for human
resources, finance and corporate accounting, internal audit, administrative support and supply.
Allocation of Net Income
Net income for partners’ capital and statement of operations is allocated to the general partner and the limited partners in accordance with their
respective ownership percentages, after giving effect to cash distributions paid to the general partner in excess of its ownership interest, if any.
Net Income per Limited Partner Unit
Income per limited partner unit is computed in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 260-10-05 Earnings Per Share, Master Limited Partnerships (EITF 03-06), by dividing the limited partners’ interest in net income by
the weighted average number of limited partner units outstanding. The pro forma nature of the allocation required by this standard provides that in any
accounting period where the Company’s aggregate net income exceeds its aggregate distribution for such period, the Company is required to present net
income per limited partner unit as if all of the earnings for the periods were distributed, regardless of whether those earnings would actually be distributed
during a particular period from an economic or practical perspective. This allocation does not impact the Company’s overall net income or other financial
results. However, for periods in which the Company’s aggregate net income exceeds its aggregate
F-10
distributions for such period, it will have the impact of reducing the earnings per limited partner unit, as the calculation according to this standard results in
a theoretical increased allocation of undistributed earnings to the general partner. In accounting periods where aggregate net income does not exceed
aggregate distributions for such period, this standard does not have any impact on the Company’s net income per limited partner unit calculation. A
separate and independent calculation for each quarter and year-to-date period is performed, in which the Company’s contractual participation rights are
taken into account.
Cash Equivalents, Receivables, Revolving Credit Facility Borrowings, and Accounts Payable
The carrying amount of cash equivalents, receivables, revolving credit facility borrowings, and accounts payable approximates fair value because
of the short maturity of these instruments.
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
September 30, 2021, the $5.0 million of cash, cash equivalents, and restricted cash on the consolidated statement of cash flows is comprised of $4.8 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 consolidated statement of cash flows is comprised 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.
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.
Inventories
Liquid 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 or net realizable value using the FIFO method.
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. Land improvement useful lives are between ten and twenty years, buildings and leasehold improvements useful lives are between five and thirty
years, fleet and other equipment useful lives are between one to fifteen years, tanks and equipment lives are between three to ten years, furniture, fixtures
and office equipment useful lives are between five to ten years.
Operating Lease Right-of-Use Assets and Related Lease Liabilities
The Company determines if an arrangement is a lease at inception. Lease liabilities are measured at the lease commencement date in an amount
equal to the present value of the minimum lease payments over the lease term. Right-of-use (“ROU”) assets are recognized based on the amount of the
lease liability adjusted for any lease
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payments made to the lessor at or before the commencement date, minus any lease incentives received, plus any initial direct costs incurred. Renewal
options are included in the calculation of the ROU asset and lease liability when it is determined that they are reasonably certain of exercise.
Certain of our lease arrangements contain non-lease components such as common area maintenance. We have elected to account for the lease
component and its associated non-lease components as a single lease component for properties and vehicles. Leases with an initial term of 12 months or
less are not recognized on our balance sheet. The Company has leases that have variable payments, including lease payments where lease payment
increases are based on the percentage change in the Consumer Price Index. For such leases, payment at the lease commencement date is used to measure
the ROU assets and operating lease liabilities. Changes in the index and other variable payments are expensed as incurred. The interest rate used to
determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in our operating leases is not
readily determinable. The basis for an incremental borrowing rate is our Term Loan, market-based yield curves and comparable debt securities.
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.
Goodwill and Intangible Assets
Goodwill and intangible assets include goodwill, customer lists, trade names and covenants not to compete.
Goodwill is the excess of cost over the fair value of net assets in the acquisition of a company. Goodwill and intangible assets with indefinite useful
lives are not amortized, but instead are annually tested for impairment. The Company has one reporting unit and performs a qualitative, and when
necessary quantitative, impairment test on its goodwill annually on August 31st or more frequently if events or circumstances indicate that the value of
goodwill might be impaired. We performed qualitative assessments (commonly referred to as Step 0) to evaluate whether it is more-likely-than-not (a
likelihood that is more than 50%) that goodwill has been impaired, as a basis to determine whether it is necessary to perform the two-step quantitative
impairment test. This qualitative assessment includes a review of factors such as our reporting unit’s market value compared to its carrying value, our
short-term and long-term unit price performance, our planned overall business strategy compared to recent financial results, as well as macroeconomic
conditions, industry and market considerations, cost factors, and other relevant Company-specific events. Goodwill impairment if any, needs to be
determined if the net book value of a reporting unit exceeds its estimated fair value. If goodwill is determined to be impaired, the amount of impairment is
measured based on the excess of the net book value of the goodwill over the implied fair value of the goodwill. The Company performed its annual
goodwill impairment valuation in each of the periods ending August 31, 2021, 2020, and 2019, and it was determined based on each year’s analysis that
there was no goodwill impairment.
Intangible assets with finite useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed
for impairment whenever changes in circumstances indicate that the assets may be impaired. The assessment for impairment requires estimates of future
cash flows related to the intangible asset. To the extent the carrying value of the assets exceeds its future undiscounted cash flows, an impairment loss is
recorded based on the fair value of the asset.
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We use amortization methods and determine asset values based on our best estimates using reasonable and supportable assumptions and
projections. Key assumptions used to determine the value of these intangibles include projections of future customer attrition or growth rates, product
margin increases, operating expenses, our cost of capital, and corporate income tax rates. For significant acquisitions we may engage a third party valuation
firm to assist in the valuation of intangible assets of that acquisition. We assess the useful lives of intangible assets based on the estimated period over
which we will receive benefit from such intangible assets such as historical evidence regarding customer churn rate. In some cases, the estimated useful
lives are based on contractual terms. Customer lists are the names and addresses of an acquired company’s customers. Based on historical retention
experience, these lists are amortized on a straight-line basis over seven to ten years.
Trade names are the names of acquired companies. Based on the economic benefit expected and historical retention experience of customers, trade
names are amortized on a straight-line basis over three to twenty years.
Business Combinations
We use the acquisition method of accounting. The acquisition method of accounting requires us to use significant estimates and assumptions,
including fair value estimates, as of the business combination date, and to refine those estimates as necessary during the measurement period (defined as
the period, not to exceed one year, in which the amounts recognized for a business combination may be adjusted). Each acquired company’s operating
results are included in our consolidated financial statements starting on the date of acquisition. The purchase price is equivalent to the fair value of
consideration transferred. Tangible and identifiable intangible assets acquired and liabilities assumed as of the date of acquisition are recorded at the
acquisition date fair value. The separately identifiable intangible assets generally are comprised of customer lists, trade names and covenants not to
compete. Goodwill is recognized for the excess of the purchase price over the net fair value of assets acquired and liabilities assumed.
Costs that are incurred to complete the business combination such as legal and other professional fees are not considered part of consideration
transferred and are charged to general and administrative expense as they are incurred. For any given acquisition, certain contingent consideration may be
identified. Estimates of the fair value of liability or asset classified contingent consideration are included under the acquisition method as part of the assets
acquired or liabilities assumed. At each reporting date, these estimates are remeasured to fair value, with changes recognized in earnings.
Assets and Liabilities Held for Sale
Assets held for sale represent certain propane assets that the Company sold on October 27, 2020. The carrying amount of assets held for sale at
September 30, 2020 included $4.4 million of goodwill, $0.8 million of intangible assets, $5.3 million of property and equipment, net, and $1.3 million of
operating lease right-of-use assets. We measure and record assets held for sale at the lower of their carrying amount or fair value less cost to sell and
recorded a $5.7 million loss for the year ended September 30, 2020. Liabilities held for sale at September 30, 2020 consisted of $1.3 million of operating
lease obligations.
Impairment of Long-lived Assets
The Company reviews intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. The Company determines whether the carrying values of such assets are recoverable over their
remaining estimated lives through undiscounted future cash flow analysis. If such a review should indicate that the carrying amount of the assets is not
recoverable, the Company will reduce the carrying amount of such assets to fair value.
Finance Charge Income
Finance charge income represents late customer payment charges and financing income from extended payment plans associated with installations.
F-13
Other Income (Loss), Net
Other loss of $5.7 million for the year ended September 30, 2020 represents a loss on a sale of certain propane assets that were held for sale at
September 30, 2020 at the lower of their carrying amount or fair value less cost to sell and were sold in fiscal 2021 at their expected value.
Deferred Charges
Deferred charges represent the costs associated with the issuance of the term loan and revolving credit facility and are amortized over the life of the
facility.
Advertising
Advertising costs are expensed as they are incurred. Advertising expenses were $13.5 million, $13.5 million, and $14.3 million, in 2021, 2020, and
2019, respectively and are recorded in delivery and branch expenses.
Customer Credit Balances
Customer credit balances represent payments received in advance from customers pursuant to a balanced payment plan (whereby customers pay on
a fixed monthly basis) and the payments made have exceeded the charges for liquid product and other services.
Environmental Costs
Costs associated with managing hazardous substances and pollution are expensed on a current basis. Accruals are made for costs associated with
the remediation of environmental pollution when it becomes probable that a liability has been incurred and the amount can be reasonably
estimated. Liabilities are recorded in accrued expenses and other current liabilities.
Self-Insurance Liability
The Company self-insures a number of risks, including a portion of workers’ compensation, auto, general liability and medical liability. Self-
insurance liabilities are established and periodically evaluated, based upon expectations as to what the ultimate liability may be for outstanding claims
using developmental factors based upon historical claim experience, including frequency, severity, demographic factors and other actuarial assumptions,
with support from a qualified third-party actuary. Liabilities are recorded in accrued expenses and other current liabilities.
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.
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.
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.
F-14
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in
the period in which the change in judgment occurs.
Our continuing practice is to recognize interest and penalties related to income tax matters as a component of income tax expense.
Sales, Use and Value Added Taxes
Taxes are assessed by various governmental authorities on many different types of transactions. Sales reported for product, installations and
services exclude taxes.
Derivatives and Hedging
Derivative instruments are recorded at fair value and included in the consolidated balance sheet as assets or liabilities. The Company has elected
not to designate its commodity derivative instruments as hedging instruments but rather as economic hedges whose changes in fair value of the derivative
instruments are recognized in our statement of operations in the caption (Increase) decrease in the fair value of derivative instruments. Depending on the
risk being economically hedged, realized gains and losses are recorded in cost of product, cost of installations and services, or delivery and branch
expenses.
The Company has designated its interest rate swap agreements as cash flow hedging derivatives. To the extent these derivative instruments are
effective and the accounting standard’s documentation requirements have been met, changes in fair value are recognized in other comprehensive income
(loss) until the underlying hedged item is recognized in earnings.
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.
Weather Hedge Contract
To partially mitigate the effect of weather on cash flows, the Company has used weather hedge contracts for a number of years. Weather hedge
contracts are recorded in accordance with the intrinsic value method defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 815-45-15 Derivatives and Hedging, Weather Derivatives (EITF 99-2). The premium paid is included in the caption prepaid
expenses and other current assets in the accompanying balance sheets and amortized over the life of the contract, with the intrinsic value method applied at
each interim period.
The Company entered into weather hedge contracts for fiscal years 2020 and 2021. Under these contracts, we are entitled to receive a payment if
the total number of degree days within the hedge period is less than the prior ten year average. The hedge period runs from November 1 through March 31,
taken as a whole, for each respective
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fiscal year. The “Payment Thresholds,” or strikes, are set at various levels for fiscal 2020 and 2021. The maximum that the Company could receive is
$12.5 million per year. In addition, for fiscal 2020 and 2021 we were obligated to make an annual payment capped at $5.0 million if degree days exceed the
Payment Threshold. For fiscal 2021 and 2020 we reduced delivery and branch expense under these contracts by $3.4 million and a $10.1 million,
respectively.
For fiscal 2022, the Company entered into weather hedge contracts with similar terms described above. The maximum that the Company can
receive is $12.5 million and the maximum that the Company would be obligated to pay annually is $5.0 million.
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 or other post
retirement plans. The Company adopted ASU No. 2018-14 effective October 1, 2020. The adoption of ASU No. 2018-14 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
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.
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3) Revenue Recognition
The following disaggregates our revenue by major sources for the years ended September 30, 2021, 2020 and 2019:
(in thousands)
Petroleum Products:
Home heating oil and propane
Motor fuel and other petroleum products
Total petroleum products
Installations and Services:
Equipment installations
Equipment maintenance service contracts
Billable call services
Total installations and services
Total Sales
2021
Years Ended September 30,
2020
2019
$
$
881,526 $
322,793
1,204,319
924,421 $
261,605
1,186,026
110,475
118,546
63,746
292,767
1,497,086 $
101,699
120,388
59,345
281,432
1,467,458 $
1,099,874
366,171
1,466,045
101,709
120,138
65,980
287,827
1,753,872
Performance Obligations
Petroleum product revenues consist of home heating oil and propane as well as diesel fuel and gasoline. Revenues from petroleum products are
recognized at the time of delivery to the customer when control is passed from the Company to the customer. Revenue is measured as the amount of
consideration we expect to receive in exchange for transferring control of the petroleum products. Approximately 95% of our full service residential and
commercial home heating oil customers automatically receive deliveries based on prevailing weather conditions. We offer several pricing alternatives to
our residential home heating oil customers, including a variable price (market based) option and a price-protected option, the latter of which either sets the
maximum price or a fixed price that a customer will pay.
Equipment maintenance service contracts primarily cover heating, air conditioning, and natural gas equipment. We generally do not sell equipment
maintenance service contracts to heating oil customers that do not take delivery of product from us. The service contract period of our equipment
maintenance service contracts is generally one year or less. Revenues from equipment maintenance service contracts are recognized into income over the
terms of the respective service contracts, on a straight-line basis. Our obligation to perform service is consistent through the duration of the contracts, and
the straight-line basis of recognition is a faithful depiction of the transfer of our services. To the extent that the Company anticipates that future costs for
fulfilling its contractual obligations under its equipment service contracts will exceed the amount of deferred revenue currently attributable to these
contracts, the Company recognizes a loss in current period earnings equal to the amount that anticipated future costs exceed related deferred revenues.
Revenue from billable call services (repairs, maintenance and other services including plumbing) and equipment installations (heating, air
conditioning, and natural gas equipment) are recognized at the time that the work is performed.
Our standard payment terms are generally 30 days. Sales reported for product, installations and services exclude taxes assessed by various
governmental authorities.
Contract Costs
We have elected to recognize incremental costs of obtaining a contract, other than new residential product and equipment maintenance service
contracts, as an expense when incurred when the amortization period of the asset that we otherwise would have recognized is one year or less. 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
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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 September 30, 2021 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 $5.7
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. For the years ended September 30, 2021 and September 30, 2020 we
recognized expense of $3.9 million and $4.0 million, respectively, associated with the amortization of deferred contract costs within delivery and branch
expenses in the Consolidated Statement of Operations. We recognize an impairment charge to the extent the carrying amount of a deferred cost exceeds the
remaining amount of consideration we expect to receive in exchange for the petroleum products and services related to the cost, less the expected costs
related directly to providing those petroleum products and services that have not yet been recognized as expenses. There have been no impairment charges
recognized for the twelve months ended September 30, 2021, September 30, 2020 and September 30, 2019.
Allocation of Transaction Price to Separate Performance Obligations
Our contracts with customers often include distinct performance obligations to transfer products and perform equipment maintenance services to a
customer that are accounted for separately. Judgment is required to determine the stand-alone selling price for each distinct performance obligation for the
purpose of allocating the transaction price to separate performance obligations. We determine the stand-alone selling price using information that may
include market conditions and other observable inputs and typically have more than one stand-alone selling price for petroleum products and equipment
maintenance services due to the stratification of those products and services by geography and customer characteristics.
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. Approximately 33% of our residential customers take advantage of our “smart pay” budget payment plan under which their estimated annual oil
and propane deliveries and service contract billings are paid for in a series of equal monthly installments. Our “smart pay” budget payment plans are
annual and generally begin outside of the heating season. We generally have received advanced amounts from customers on “smart pay” budget payment
plans prior to the heating season, which are reduced as oil deliveries are made. For customers that are not on “smart pay” budget payment plans, we
generally receive the full contract amount for equipment service contracts with customers at the outset of the contracts. Contract liabilities are recognized
straight-line over the service contract period, generally one-year or less. As of September 30, 2021 and September 30, 2020 the Company had contract
liabilities of $141.6 million and $139.6 million, respectively. During the year ended September 30, 2021 the Company recognized $128.5 million of
revenue that was included in the September 30, 2020 contract liability balance. During the year ended September 30, 2020 the Company recognized $118.6
million of revenue that was included in the September 30, 2019 contract liability balance.
Receivables and Allowance for Doubtful Accounts
Changes in the allowance for credit losses are as follows:
(in thousands)
Balance at September 30, 2020
Current period provision
Write-offs, net and other
Balance as of September 30, 2021
4) Quarterly Distribution of Available Cash
Credit Loss Allowance
6,121
(248)
(1,094)
4,779
$
$
The Company’s Partnership Agreement provides that beginning October 1, 2008, the minimum quarterly distributions on the common units will
start accruing at the rate of $0.0675 per quarter ($0.27 on an annual basis).
F-18
In general, the Company intends to distribute to its partners on a quarterly basis, all of its available cash, if any, in the manner described below. “Available
cash” generally means, for any of its fiscal quarters, all cash on hand at the end of that quarter, less the amount of cash reserves that are necessary or
appropriate in the reasonable discretion of the general partners to:
•
•
•
provide for the proper conduct of the Company’s business including acquisitions and debt payments;
comply with applicable law, any of its debt instruments or other agreements; or
provide funds for distributions to the common unitholders during the next four quarters, in some circumstances.
Available cash will generally be distributed as follows:
•
•
•
•
•
first, 100% to the common units, pro rata, until the Company distributes to each common unit the minimum quarterly distribution of $0.0675;
second, 100% to the common units, pro rata, until the Company distributes to each common unit any arrearages in payment of the minimum
quarterly distribution on the common units for prior quarters;
third, 100% to the general partner units, pro rata, until the Company distributes to each general partner unit the minimum quarterly
distribution of $0.0675;
fourth, 90% to the common units, pro rata, and 10% to the general partner units, pro rata (subject to the Management Incentive Plan), until
the Company distributes to each common unit the first target distribution of $0.1125; and
thereafter, 80% to the common units, pro rata, and 20% to the general partner units, pro rata.
The Company is obligated to meet certain financial covenants under the fifth amended and restated credit agreement. The Company must maintain
excess availability of at least 15.0% of the revolving commitment then in effect and a fixed charge coverage ratio of 1.15 in order to make any distributions
to unitholders. (See Note 13—Long-Term Debt and Bank Facility Borrowings)
For fiscal 2021, 2020, and 2019, cash distributions declared per common unit were $0.550, $0.515, and $0.485, respectively.
For fiscal 2021, 2020, and 2019, $0.9 million, $0.8 million, and $0.7 million, respectively, of incentive distributions were paid to the general
partner, exclusive of amounts paid subject to the Management Incentive Plan.
5) Common Unit Repurchase Plans and Retirement
In July 2012, the Board adopted a plan to repurchase certain of the Company’s Common Units (the “Repurchase Plan”). Through August 2020, the
Company had repurchased approximately 14.4 million Common Units under the Repurchase Plan. In August 2020, the Board authorized an increase of the
number of Common Units that remained available for the Company to repurchase from 2.0 million to a total of 6.0 million, of which, 4.9 million were
available for repurchase in open market transactions and 1.1 million were available for repurchase in privately-negotiated transactions. There is no
guarantee of the number of units that will be purchased under the Repurchase Plan and the Company may discontinue purchases at any time. The
Repurchase Plan does not have a time limit. The Board may also approve additional purchases of units from time to time in private transactions. The
Company’s repurchase activities take into account SEC safe harbor rules and guidance for issuer repurchases. All of the Common Units purchased under
the Repurchase Plan will be retired.
F-19
Under the Credit Agreement dated December 4, 2019, 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
outstanding) 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. (See Note 13—Long-Term Debt and Bank Facility Borrowings). The following table shows repurchases under the Repurchase Plan.
(in thousands, except per unit amounts)
Period
Fiscal year 2012 to 2020 total
First quarter fiscal year 2021 total
Second quarter fiscal year 2021 total
Third quarter fiscal year 2021 total
July 2021
August 2021
September 2021
Fourth quarter fiscal year 2021 total
Fiscal year 2021 total
October 2021
November 2021
Total Number
of Units
Purchased
Average Price
Paid per Unit
(a)
Total Number
of Units
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Maximum
Number
of Units that
May
Yet Be Purchased
17,697
$
8.26
14,622
2,591
538
568
25
223
337
585
4,282
273
161
$
$
$
$
$
$
$
$
$
$
9.75
9.67
10.94
11.27
10.68
10.30
10.49
10.00
10.67
10.99
1,191
538
568
25
223
337
585
2,882
273
161
5,730
(b),
(c)
4,539
4,001 (d)
3,433 (e)
3,408
3,185
2,848
2,848
2,848
2,575
2,414 (f)
(a)
(b)
(c)
(d)
(e)
(f)
Amounts include repurchase costs.
On November 16, 2020, the Company purchased 1.4 million Common Units in a private transaction for aggregate consideration of approximately
$13.8 million. The purchase was made outside of the Company’s unit repurchase plan.
On December 10, 2020, the Company purchased 0.4 million Common Units in a private transaction for aggregate consideration of approximately
$4.2 million. The purchase was made within the Company’s unit repurchase plan.
On January 28, 2021, the Company purchased 0.1 million Common Units in a private transaction for aggregate consideration of approximately
$1.3 million. The purchase was made within the Company’s unit repurchase plan.
On May 28, 2021, the Company purchased 0.3 million Common Units in a private transaction for aggregate consideration of approximately
$2.8 million. The purchase was made within the Company’s unit repurchase plan.
Of the total available for repurchase, approximately 2.1 million are available for repurchase in open market transactions and 0.3 million are
available for repurchase in privately-negotiated transactions.
F-20
6) Captive Insurance Collateral
The Company considers all of its captive insurance collateral to be Level 1 available-for-sale investments. Investments at September 30, 2021 consist
of the following (in thousands):
Cash and Receivables
U.S. Government Sponsored Agencies
Corporate Debt Securities
Foreign Bonds and Notes
Total
Amortized Cost
515
51,632
16,302
502
68,951
Gross Unrealized Gain
—
$
108
918
27
1,053
$
$
$
$
$
Gross Unrealized
(Loss)
Fair Value
—
(53)
(18)
—
(71)
$
$
515
51,687
17,202
529
69,933
Investments at September 30, 2020 consist of the following (in thousands):
Cash and Receivables
U.S. Government Sponsored Agencies
Corporate Debt Securities
Foreign Bonds and Notes
Total
Amortized Cost
Gross Unrealized
Gain
Gross Unrealized
(Loss)
Fair Value
$
$
1,152
42,032
21,666
2,992
67,842
$
$
—
229
1,660
82
1,971
$
$
—
(26)
—
—
(26)
$
$
1,152
42,235
23,326
3,074
69,787
Maturities of investments were as follows at September 30, 2021 (in thousands):
Due within one year
Due after one year through five years
Due after five years through ten years
Total
Net Carrying Amount
$
$
4,035
65,354
544
69,933
7) Derivatives and Hedging—Disclosures and Fair Value Measurements
The Company uses derivative instruments such as futures, options and swap agreements in order to mitigate exposure to market risk associated
with the purchase of home heating oil for price-protected customers, physical inventory on hand, inventory in transit, priced purchase commitments and
internal fuel usage. FASB ASC 815-10-05 Derivatives and Hedging, established accounting and reporting standards requiring that derivative instruments be
recorded at fair value and included in the consolidated balance sheet as assets or liabilities, along with qualitative disclosures regarding the derivative
activity. The Company has elected not to designate its commodity derivative instruments as hedging derivatives, but rather as economic hedges whose
change in fair value is recognized in its statement of operations in the 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 September 30, 2021, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its
price-protected customers, the Company held the following derivative instruments that settle in future months to match anticipated sales:11.8 million
gallons of swap contracts with a notional value of $22.9 million and a fair value of $1.4 million, 7.8 million gallons of call options with a notional value of
$18.9 million and a fair value of $1.2 million, 4.4 million gallons of put options with a notional value of $5.8 million and a fair value of less than $0.1
million, and 74.2 million net gallons of synthetic call options with an average notional value of $143.2 million and a fair value of $23.7 million. To hedge
the inter-month differentials for its price-protected customers, its physical inventory on hand and inventory in transit, the Company, as of
September 30, 2021, had 3.8 million gallons of purchased long future contracts that settle daily with a notional value of $5.4 million and a fair value of
$3.4 million, and 21.0 million gallons of short future contracts that settle daily
F-21
with a notional value of $42.1 million and a fair value of $(6.8) million. To hedge its internal fuel usage and other related activities for fiscal 2022, the
Company, as of September 30, 2021, had 6.8 million gallons of call options and swap contracts with a notional value of $13.8 million and a fair value of
$1.5 million that settle in future months.
As of September 30, 2020, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its
price-protected customers, the Company held the following derivative instruments that settle in future months to match anticipated sales: 11.3 million
gallons of swap contracts with a notional value of $16.0 million and a fair value of $(2.6) million, 8.5 million gallons of call options with a notional value
of $17.4 million and a fair value of $0.1 million, 5.1 million gallons of put options with a notional value of $4.2 million and a fair value of $0.2 million,
and 80.7 million net gallons of synthetic call options with an average notional value of $123.4 million and a fair value of $(8.6) million. To hedge the inter-
month differentials for its price-protected customers, its physical inventory on hand and inventory in transit, the Company, as of September 30, 2020, had
19.2 million gallons of purchased short swap contracts with a notional value of $22.7 million and a fair value of less than $0.1 million, 3.8 million gallons
of purchased long future contracts that settle daily with a notional value of $5.4 million and a fair value of $(0.4) million, and 11.1 million gallons of short
future contracts that settle daily with a notional value of $14.3 million and a fair value of $0.7 million. To hedge its internal fuel usage and other related
activities for fiscal 2021, the Company, as of September 30, 2020, had 7.0 million gallons of call options and swap contracts with a notional value of
$10.7 million and a fair value of $(0.4) million that settle in future months.
As of September 30, 2021, the Company has interest rate swap agreements in order to mitigate exposure to market risk associated with variable
rate interest on $59.0 million, or 53%, of its long term debt. The Company has designated its interest rate swap agreements as cash flow hedging
derivatives. To the extent these derivative instruments are effective and the accounting standard’s documentation requirements have been met, changes in
fair value are recognized in other comprehensive income until the underlying hedged item is recognized in earnings. As of September 30, 2021 the fair
value of the swap contracts was $(1.6) million. As of September 30, 2020, the notional value of the swap contracts was $64.0 million and the fair value of
the swap contracts was $(3.1) million. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of the swap
contracts.
The Company’s derivative instruments are with the following counterparties: Bank of America, N.A., Bank of Montreal, Cargill, Inc., Citibank,
N.A., JPMorgan Chase Bank, N.A., Key Bank, N.A., Toronto-Dominion Bank and Wells Fargo Bank, N.A. The Company assesses counterparty credit risk
and considers it to be low. We maintain master netting arrangements that allow for the non-conditional offsetting of amounts receivable and payable with
counterparties to help manage our risks and record derivative positions on a net basis. The Company generally does not receive cash collateral from its
counterparties and does not restrict the use of cash collateral it maintains at counterparties. At September 30, 2021, the aggregate cash posted as collateral
in the normal course of business at counterparties was $5.1 million. Positions with counterparties who are also parties to our credit agreement are
collateralized under that facility. As of September 30, 2021, no hedge positions and payable amounts were secured under the credit facility.
The Company’s Level 1 derivative assets and liabilities represent the fair value of commodity contracts used in its hedging activities that are
identical and traded in active markets. The Company’s Level 2 derivative assets and liabilities represent the fair value of commodity and interest rate
contracts used in its hedging activities that are valued using either directly or indirectly observable inputs, whose nature, risk and class are similar. No
significant transfers of assets or liabilities have been made into and out of the Level 1 or Level 2 tiers. All derivative instruments were non-trading
positions and were either a Level 1 or Level 2 instrument. The Company had no Level 3 derivative instruments. The fair market value of our Level 1 and
Level 2 derivative assets and liabilities are calculated by our counter-parties and are independently validated by the Company. The Company’s calculations
are, for Level 1 derivative assets and liabilities, based on the published New York Mercantile Exchange (“NYMEX”) market prices for the commodity
contracts open at the end of the period. For Level 2 derivative assets and liabilities the calculations performed by the Company are based on a combination
of the NYMEX published market prices and other inputs, including such factors as present value, volatility and duration.
F-22
The Company had no assets or liabilities that are measured at fair value on a nonrecurring basis subsequent to their initial recognition. The
Company’s commodity financial assets and liabilities measured at fair value on a recurring basis are listed on the following table.
(In thousands)
Derivatives Not Designated
as Hedging Instruments
Under FASB ASC 815-10
Commodity contracts
Commodity contracts
Balance Sheet Location
Asset Derivatives at September 30, 2021
Total
Fair Value Measurements at
Reporting Date Using:
Quoted Prices
in Active
Markets for
Identical Assets
Level 1
Significant
Other
Observable
Inputs
Level 2
Fair asset value of derivative instruments
$
29,360 $
— $
29,360
Long-term derivative liabilities included in the
deferred charges and other assets, net
Commodity contract assets at September 30, 2021
Commodity contracts
Commodity contracts
Liability Derivatives at September 30, 2021
Fair asset value of derivative instruments
Long-term derivative liabilities included in the
deferred charges and other assets, net
Commodity contract liabilities at September 30, 2021
Commodity contracts
Commodity contracts
Asset Derivatives at September 30, 2020
Fair liability value of derivative instruments
Long-term derivative liabilities included in the
deferred charges and other assets, net and other
long-term liabilities, net balances
Commodity contract assets at September 30, 2020
2,023
31,383 $
—
— $
2,023
31,383
(3,138) $
— $
(3,138)
(463)
(3,601) $
—
— $
(463)
(3,601)
24,274 $
— $
24,274
1,890
26,164 $
—
— $
1,890
26,164
$
$
$
$
$
Liability Derivatives at September 30, 2020
Fair liability value of derivative instruments
$
(35,711) $
— $
(35,711)
Commodity contracts
Commodity contracts
Long-term derivative liabilities included in the
deferred charges and other assets, net and other
long-term liabilities, net balances
(1,779)
(37,490) $
$
—
— $
(1,779)
(37,490)
Commodity contract liabilities at September 30, 2020
F-23
The Company’s commodity derivative assets (liabilities) offset by counterparty and subject to an enforceable master netting arrangement are listed
on the following table.
(In thousands)
Offsetting of Financial Assets (Liabilities)
and Derivative Assets (Liabilities)
Fair asset value of derivative instruments
Long-term derivative assets included in deferred charges and
other assets, net
Total at September 30, 2021
Long-term derivative assets included in other long-term assets,
net
Fair liability value of derivative instruments
Long-term derivative liabilities included in other long-term
liabilities, net
Total at September 30, 2020
Gross Amounts Not Offset in the
Statement of Financial Position
Gross
Liabilities
Offset
in the
Statement
of Financial
Position
Net Assets
(Liabilities)
Presented
in the
Statement of
Financial
Position
$
(3,138) $
26,222
Gross
Assets
Recognized
29,360
$
Financial
Instruments
—
$
2,023
31,383
1,605
24,274
$
$
(463)
(3,601) $
1,560
27,782
$
(1,478) $
(35,711)
$
127
(11,437)
285
26,164
$
(301)
(37,490) $
(16)
(11,326) $
$
$
$
—
—
—
—
—
—
$
$
$
$
Cash
Collateral
Received
Net
Amount
—
$
26,222
—
—
—
—
—
—
$
$
$
1,560
27,782
127
(11,437)
(16)
(11,326)
(In thousands)
Derivatives Not
Designated as Hedging
Instruments Under FASB ASC 815-10
Commodity contracts
Commodity contracts
Commodity contracts
Commodity contracts
The Effect of Derivative Instruments on the Statement of Operations
Location of (Gain) or Loss Recognized in
Income on Derivative
Cost of product (a)
Cost of installations and service (a)
Delivery and branch expenses (a)
(Increase) / decrease in the fair value of derivative instruments (b)
Amount of (Gain) or Loss Recognized
Years Ended September 30,
2021
2,395
(359) $
183
2020
$
$ 10,462
$
607
$ 1,634
$
$ (36,138) $ 2,755
2019
$ 9,266
$
836
596
$
$ 25,113
(a)
(b)
Represents realized closed positions and includes the cost of options as they expire.
Represents the change in value of unrealized open positions and expired options.
8) 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):
Product
Parts and equipment
Total inventory
September 30,
2021
2020
$
$
37,890
23,293
61,183
$
$
29,799
20,457
50,256
Product inventories were comprised of 19.0 million gallons and 26.9 million gallons on September 30, 2021 and September 30, 2020, respectively.
The Company has market price based product supply contracts for approximately 215.7 million gallons of home heating oil and propane, and 43.2 million
gallons of diesel and gasoline, which it expects to fully utilize to meet its requirements over the next twelve months.
F-24
During fiscal 2021, Motiva Enterprises LLC and Global Companies LLC provided approximately 12% each of our petroleum product purchases.
During fiscal 2020, Shell Oil Company, Motiva Enterprises LLC and Global Companies LLC provided approximately 13%, 12% and 11% respectively, of
our petroleum product purchases.
9) Property and Equipment
The components of property and equipment were as follows (in thousands):
Land and land improvements
Buildings and leasehold improvements
Fleet and other equipment
Tanks and equipment
Furniture, fixtures and office equipment
Total
Less accumulated depreciation and amortization
Property and equipment, net
September 30,
2021
2020
22,590 $
42,344
75,365
54,848
43,183
238,330
139,207
99,123 $
21,626
39,726
71,002
47,694
40,172
220,220
126,725
93,495
$
$
Depreciation and amortization expense related to property and equipment was $14.5 million, $15.0 million, and $13.5 million, for the fiscal years
ended September 30, 2021, 2020 and 2019 respectively.
10) Business Combinations
During fiscal 2021, the Company acquired two propane and three heating oil dealers for approximately $42.5 million; $40.7 million in cash and
$1.8 million of deferred liabilities. The gross purchase price was allocated $37.3 million to goodwill and intangible assets, $6.2 million to fixed assets and
reduced by $1.0 million in working capital credits. The acquired companies’ operating results are included in the Company’s consolidated financial
statements starting on their respective acquisition date, and are not material to the Company’s financial condition, results of operations, or cash flows.
During fiscal 2020, the Company acquired two heating oil dealers for approximately $3.3 million; $3.0 million in cash and $0.3 million of deferred
liabilities. The gross purchase price was allocated $3.2 million to goodwill and intangible assets, $0.6 million to fixed assets and reduced by $0.5 million in
working capital credits. The acquired companies’ operating results are included in the Company’s consolidated financial statements starting on their
respective acquisition date, and are not material to the Company’s financial condition, results of operations, or cash flows. The Company also completed
the purchase of fixed assets related to a fiscal 2019 acquisition of a heating oil dealer for an aggregate purchase price of approximately $1.2 million.
F-25
During fiscal 2019, the Company acquired one of its subcontractors, a liquid product dealer and the assets of a propane dealer for an aggregate
purchase price of approximately $60.9 million. The following table summarizes the final fair values and purchase price allocations in aggregate of the
assets acquired and liabilities assumed related to the fiscal 2019 acquisitions as of the respective acquisition dates.
(in thousands)
Receivables
Inventories
Prepaid expenses and other current assets
Property and equipment, net
Intangibles
Accrued expenses and other current liabilities
Unearned service contract revenue
Customer credit balances
Other long-term liabilities
Total net identifiable assets acquired
Total consideration
Less: Total net identifiable assets acquired
Goodwill
$
$
$
$
As of Acquisition Date
6,887
2,105
89
14,926
28,599
(366)
(2,800)
(3,399)
(1,275)
44,766
60,904
44,766
16,138
11) Goodwill and Other Intangible Assets
Goodwill
A summary of changes in the Company’s goodwill during the fiscal years ended September 30, 2021 and 2020 are as follows (in thousands):
Balance as of September 30, 2019
Fiscal year 2020 business combinations
Goodwill included within assets held for sale
Balance as of September 30, 2020
Fiscal year 2021 business combinations
Balance as of September 30, 2021
$
$
244,574
184
(4,431)
240,327
13,071
253,398
Intangibles, net
Intangible assets subject to amortization consist of the following (in thousands):
Customer lists
Trade names and other intangibles
Total
2021
Gross
Carrying
Amount
Accum.
Amortization
$
$
403,913 $
40,548
444,461 $
329,406 $
19,581
348,987 $
F-26
September 30,
Gross
2020
Carrying
Amount
Net
74,507 $
20,967
95,474 $
382,942
37,382
420,324
Accum.
Amortization
312,928
$
17,103
330,031
$
$
$
Net
70,014
20,279
90,293
Amortization expense for intangible assets was $19.0 million, $19.6 million, and $19.4 million, for the fiscal years ended September 30, 2021,
2020, and 2019, respectively. Total estimated annual amortization expense related to intangible assets subject to amortization, for the year ended
September 30, 2021 and the four succeeding fiscal years ended September 30, is as follows (in thousands):
2022
2023
2024
2025
2026
Amount
17,763
16,165
13,853
11,561
8,541
$
$
$
$
$
12) Accrued Expenses and Other Current Liabilities
The components of accrued expenses and other current liabilities were as follows (in thousands):
Accrued wages and benefits
Self-insurance liabilities
Other accrued expenses and other current liabilities
Total accrued expenses and other current liabilities
13) Long-Term Debt and Bank Facility Borrowings
The Company's debt is as follows
(in thousands):
Revolving Credit Facility Borrowings
Senior Secured Term Loan (b)
Total debt
Total short-term portion of debt
Total long-term portion of debt
September 30,
2021
2020
29,467
80,572
11,182
121,221
$
$
37,359
78,993
10,934
127,286
$
$
September 30,
2021
2020
Carrying
Amount
8,618
110,006
118,624
Fair Value (a)
8,618
$
110,500
119,118
$
26,239
92,385
$
$
26,239
92,879
$
$
$
$
$
$
$
$
Carrying
Amount
—
122,805
122,805
13,000
109,805
$
$
$
Fair Value (a)
$
—
123,500
123,500
13,000
110,500
The face amount of the Company’s variable rate long-term debt approximates fair value.
(a)
(b) Carrying amounts are net of unamortized debt issuance costs of $0.5 million as of September 30, 2021 and $0.7 million as of
September 30, 2020.
On December 4, 2019, the Company refinanced its five-year term loan and the revolving credit facility with the execution of the fifth amended and
restated revolving credit facility agreement (the “credit agreement”) with a bank syndicate comprised of eleven 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 $130 million five-year senior secured term loan (“Term
Loan”), allows for the issuance of up to $25 million in letters of credit, and has a maturity date of December 4, 2024.
The Company can increase the revolving credit facility size by $200 million without the consent of the bank group. However, the bank group is not
obligated to fund the $200 million increase. If the bank group elects not to fund the increase, the Company can add additional lenders to the group, with the
consent of the Agent, which shall not be unreasonably withheld. Obligations under the credit agreement are guaranteed by the Company and its
F-27
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 credit agreement become due and payable on the facility termination date of December 4, 2024. The Term Loan
is repayable in quarterly payments of $3.25 million, the first of which was made on April 1, 2020, plus an annual payment equal to 25% of the annual
Excess Cash Flow as defined in the credit agreement (an amount not to exceed $12 million annually), less certain voluntary prepayments made during the
year, with final payment at maturity. As of September 30, 2021 the Company expects to make approximately $4.6 million of additional term loan
repayments due to Excess Cash Flow for the fiscal year ended September 30, 2021. The amount is included in the caption current maturities of long-term
debt on our consolidated balance sheet. On November 5, 2020, the Company obtained a waiver from the bank group that waived the Excess Cash Flow
payment for the fiscal year ended September 30, 2020.
The interest rate on the revolving credit facility and the term loan is based on a margin over LIBOR or a base rate. At September 30, 2021, the
effective interest rate on the term loan and revolving credit facility borrowings was approximately 4.3% and 2.5%, respectively. At September 30, 2020, the
effective interest rate on the term loan and revolving credit facility borrowings was approximately 5.2% and 4.0%, respectively.
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 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 cannot be more than 3.0 as calculated as of the quarters ending June or
September, and no more than 4.5 as calculated as of the quarters ending December or March.
Certain restrictions are also imposed by the credit agreement, including restrictions on the Company’s ability to incur additional indebtedness, to
pay distributions to unitholders, to pay certain inter-company dividends or distributions, make investments, grant liens, sell assets, make acquisitions and
engage in certain other activities.
At September 30, 2021, $110.5 million of the term loan was outstanding, $8.6 million was outstanding under the revolving credit facility, no hedge
positions were secured under the credit agreement and $3.1 million of letters of credit were issued and outstanding. At September 30, 2020, $123.5 million
of the term loan was outstanding, no amount was outstanding under the revolving credit facility, $11.1 million hedge positions were secured under the
fourth amended and restated credit agreement and $3.5 million of letters of credit were issued and outstanding.
At September 30, 2021, availability was $171.5 million, the Company was in compliance with the fixed charge coverage ratio and the senior
secured leverage ratio, and the restricted net assets totaled approximately $268.2 million. Restricted net assets are assets in the Company’s subsidiaries, the
distribution or transfer of which to Star Group, L.P. are subject to limitations under its credit agreement. At September 30, 2020, availability was $203.4
million, the Company was in compliance with the fixed charge coverage ratio and the senior secured leverage ratio, and the restricted net assets totaled
approximately $245.8 million.
As of September 30, 2021, the maturities (including working capital borrowings and expected repayments due to Excess Cash Flow) during fiscal
years ending September 30, considering the terms of our credit agreement, are set forth in the following table (in thousands):
2022
2023
2024
2025
2026
Thereafter
$
$
$
$
$
$
26,239
13,000
13,000
66,879
—
—
F-28
14) Employee Benefit Plans
Defined Contribution Plans
The Company has 401(k) and other defined contribution plans that cover eligible non-union and union employees, and makes employer
contributions to these plans, subject to IRS limitations. The Company’s 401(k) plan provides for each participant to contribute from 0% to 60% of
compensation, subject to IRS limitations. The Company’s aggregate contributions to the 401(k) plans during fiscal 2021, 2020, and 2019, were $8.2
million, $7.9 million, and $7.6 million, respectively. The Company’s aggregate contribution to the other defined contribution plans for fiscal years 2021,
2020, and 2019, were $0.6 million, $0.6 million, and $0.6 million respectively.
Management Incentive Compensation Plan
The Company has a Management Incentive Compensation Plan (“the Plan”). The long-term compensation structure is intended to align the
employee’s performance with the long-term performance of our unitholders. Under the Plan, certain named employees who participate shall be entitled to
receive a pro rata share of an amount in cash equal to:
•
•
50% of the distributions (“Incentive Distributions”) of Available Cash in excess of the minimum quarterly distribution of $0.0675 per unit
otherwise distributable to Kestrel Heat pursuant to the Company Agreement on account of its general partner units; and
50% of the cash proceeds (the “Gains Interest”) which Kestrel Heat shall receive from the sale of its general partner units (as defined in the
Partnership Agreement), less expenses and applicable taxes.
The pro rata share payable to each participant under the Plan is based on the number of participation points as described under “Fiscal 2021
Compensation Decisions—Management Incentive Compensation Plan.” The amount paid in Incentive Distributions is governed by the Partnership
Agreement and the calculation of Available Cash.
To fund the benefits under the Plan, Kestrel Heat has agreed to forego receipt of the amount of Incentive Distributions that are payable to plan
participants. For accounting purposes, amounts payable to management under this Plan will be treated as compensation and will reduce net income. Kestrel
Heat has also agreed to contribute to the Company, as a contribution to capital, an amount equal to the Gains Interest payable to participants in the Plan by
the Company. The Company is not required to reimburse Kestrel Heat for amounts payable pursuant to the Plan.
The Plan is administered by the Company’s Chief Financial Officer under the direction of the Board or by such other officer as the Board may from
time to time direct. In general, no payments will be made under the Plan if the Company is not distributing cash under the Incentive Distributions described
above.
In fiscal 2012, the Board of Directors adopted certain amendments (the “Plan Amendments”) to the Plan. Under the Plan Amendments, the number
and identity of the Plan participants and their participation interests in the Plan have been frozen at the current levels. In addition, under the Plan
Amendments, the plan benefits (to the extent vested) may be transferred upon the death of a participant to his or her heirs. A participant’s vested percentage
of his or her plan benefits will be 100% during the time a participant is an employee or consultant of the Company. Following the termination of such
positions, a participant’s vested percentage is equal to 20% for each full or partial year of employment or consultation with the Company starting with the
fiscal year ended September 30, 2012 (33 1/3% in the case of the Company’s chief executive officer at that time).
The Company distributed to management and the general partner Incentive Distributions of approximately $1,833,000 during fiscal 2021,
$1,654,000 during fiscal 2020, and $1,464,000 during fiscal 2019. Included in these amounts for fiscal 2021, 2020, and 2019, were distributions under the
management incentive compensation plan of $917,000, $827,000, and $732,000, respectively, of which named executive officers received approximately
$386,857 during fiscal 2021, $349,494 during fiscal 2020, and $397,430 during fiscal 2019. With regard to the Gains Interest, Kestrel Heat has not given
any indication that it will sell its general partner units within the next twelve months. Thus the Plan’s value attributable to the Gains Interest currently
cannot be determined.
F-29
Multiemployer Pension Plans
At September 30, 2021, approximately 44% of our employees were covered by collective bargaining agreements and approximately 10% of our
employees are in collective bargaining agreements that are up for renewal within the next fiscal year. We contribute to various multiemployer union
administered pension plans under the terms of collective bargaining agreements that provide for such plans for covered union-represented employees. The
risks of participating in these multiemployer plans are different from single-employer plans in that assets contributed are pooled and may be used to
provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the remaining participating
employers may be required to bear the unfunded obligations of the plan. If we choose to stop participating in a multiemployer plan, we may be required to
pay a withdrawal liability in part based on the underfunded status of the plan.
The following table outlines our participation and contributions to multiemployer pension plans for the periods ended September 30, 2021, 2020,
and 2019. The EIN/Pension Plan Number column provides the Employer Identification Number (“EIN”) and the three-digit plan number. The most recent
Pension Protection Act Zone Status for 2021 and 2020 relates to the plans’ two most recent fiscal year-ends, based on information received from the plans
as reported on their Form 5500 Schedule MB. Among other factors, plans in the red zone are generally less than 65 percent funded and are designated as
critical or critical and declining, plans in the yellow zone are less than 80 percent funded and are designated as endangered, and plans in the green zone are
at least 80 percent funded. As of September 30, 2021 the New England Teamsters and Trucking Industry Pension Fund (“the NETTI Fund”), IAM National
Pension, Teamsters Local 469 Pension and Local 445 Pension funds have been classified as carrying “red zone” status, meaning that the value of fund’s
assets are less than 65% of the actuarial value of the fund’s benefit obligations or have made a voluntary election. The FIP/RP Status Pending/Implemented
column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. Certain
plans have been aggregated in the All Other Multiemployer Pension Plans line of the following table, as our participation in each of these individual plans
is not significant.
For the Westchester Teamsters Pension Fund, Local 553 Pension Fund and Local 463 Pension Fund, we provided more than 5 percent of the total
plan contributions from all employers for 2021, 2020 and 2019, as disclosed in the respective plan’s Form 5500. The collective bargaining agreements of
these plans require contributions based on the hours worked and there are no minimum contributions required.
F-30
Pension Fund
New England Teamsters and
Trucking Industry Pension Fund
Westchester Teamsters Pension Fund
EIN
/ Pension Plan
Number
04-6372430
13-6123973
/ 001 Green Green
Local 553 Pension Fund
13-6637826
/ 001 Green Green
Local 463 Pension Fund
11-1800729
/ 001 Green Green
IAM National Pension Fund
51-6031295
Pension Protection
Act Zone
Status
FIP / RP Status
Company
Contributions
(in thousands)
2021
2020
Pending / Implemented
2021
2020
2019
Expiration Date
of Collective-
Bargaining
Agreements
Surcharge
Imposed
/ 001 Red Red Yes / Implemented $ 2,563 $ 2,659 $ 2,468
No
N/A
N/A
N/A
1,100
887 1,039
No
2,841 2,678 3,114
No
138
138
144
No
8/31/22 to
4/30/24
1/31/24 to
12/31/24
12/15/22 to
1/15/23
6/30/22 to
2/28/23
1/13/22 to
10/31/23
Teamsters Local 469 Pension Plan
22-6172237
/ 002 Red Red Yes / Implemented 2,532 2,822 2,296 Yes
Local 445 Pension Fund
13-1864489
/ 001 Red Red Yes / Implemented
7
5
4 Yes
10/31/24
/ 001 Red Red Yes / Implemented
11
20
26 Yes
8/31/24
All Other Multiemployer Pension
Plans
Total Contributions $ 9,603 $ 9,657 $ 9,598
411
448
507
Agreement with the New England Teamsters and Trucking Industry Pension Fund
In fiscal 2015, the Teamsters ratified an agreement among certain subsidiaries of the Company and the NETTI Fund, a multiemployer pension plan
in which such subsidiaries participate, providing for the Company’s participating subsidiaries to withdraw from the NETTI Fund’s original employer pool
and enter the NETTI Fund’s new employer pool. The NETTI Fund includes over two hundred of our current employees. The withdrawal from the original
employer pool triggered an undiscounted withdrawal obligation of $48.0 million that is to be paid in equal monthly installments over 30 years, or
$1.6 million per year.
Our status in the newly-established pool of the NETTI Fund is accounted for as participation in a new multiemployer pension plan, and therefore
we recognize expense based on the contractually-required contribution for each period, and we recognize a liability for any contributions due and unpaid at
the end of a reporting period.
As of September 30, 2021 we had $0.2 million and $16.5 million balances included in the captions accrued expenses and other current liabilities
and other long-term liabilities, respectively, on our consolidated 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 September 30, 2021 was $25.8 million. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine
the fair value of this liability.
Defined Benefit Plans
The Company has two frozen defined benefit pension plans (“the Plan”). The Company has no post-retirement benefit plans.
F-31
Effective September 30, 2021, the Company adopted the Society of Actuaries 2021 Mortality Tables Report and Improvement Scale, which
updated the mortality assumptions that private defined benefit retirement plans in the United States use in the actuarial valuations that determine a plan
sponsor’s pension obligations. The updated mortality data reflects higher mortality improvement than assumed in the Society of Actuaries 2020 Mortality
Table Report and Improvement Scale, and affected plans generally expect the value of the actuarial obligations to increase, depending on the specific
demographic characteristics of the plan participants and the types of benefits.
The following table provides the net periodic benefit cost for the period, a reconciliation of the changes in the Plan assets, projected benefit
obligations, and the amounts recognized in other comprehensive income and accumulated other comprehensive income at the dates indicated using a
measurement date of September 30 (in thousands):
F-32
Net Periodic
Pension
Cost in
Income
Statement
Cash
Fair
Value of
Pension
Plan
Assets
Projected
Benefit
Obligation
Other
Comprehensive
(Income) / Loss
Debit / (Credit)
Fiscal Year 2019
Beginning balance
Interest cost
Actual return on plan assets
Employer contributions
Benefit payments
Investment and other expenses
Difference between actual and expected return on plan assets
Anticipated expenses
Actuarial loss
Amortization of unrecognized net actuarial loss
Annual cost/change
Ending balance
Funded status at the end of the year
Fiscal Year 2020
Interest cost
Actual return on plan assets
Employer contributions
Benefit payments
Investment and other expenses
Difference between actual and expected return on plan assets
Anticipated expenses
Actuarial loss
Amortization of unrecognized net actuarial loss
Annual cost/change
Ending balance
Funded status at the end of the year
Fiscal Year 2021
Interest cost
Actual return on plan assets
Employer contributions
Benefit payments
Investment and other expenses
Difference between actual and expected return on plan assets
Anticipated expenses
Actuarial gain
Amortization of unrecognized net actuarial loss
Annual cost/change
Ending balance
Funded status at the end of the year
$
$
$
$
61,924
$
(59,542)
(2,366)
—
9,380
—
(4,466)
4,466
483
(310)
(7,738)
—
$
4,914
66,838
(5,465) $
(65,007)
1,831
$
$
—
6,538
—
(4,288)
(1,875)
4,288
539
(334)
(3,009)
—
$
2,250
69,088
(391) $
(65,398)
3,690
$
$
—
678
—
(4,429)
(1,541)
4,429
377
(345)
1,184
—
$
(3,751)
$
65,337
4,104
$
(61,294)
$
4,043
2,366
(9,380)
(483)
7,086
310
1,821
1,720
$
1,875
(6,538)
(539)
4,268
334
1,617
1,017
$
1,541
(678)
(377)
(1,386)
345
937
382
$
F-33
Gross Pension
Related
Accumulated
Other
Comprehensive
Income
$
16,273
(7,086)
7,738
(1,821)
(1,169)
$
(1,169)
15,104
(4,268)
3,009
(1,617)
(2,876)
$
(2,876)
12,228
1,386
(1,184)
(937)
(735)
$
(735)
11,493
At September 30, 2021 the amounts included on the balance sheet in deferred charges and other assets were $4.0 million, and at
September 30, 2020 the amounts included on the balance sheet in deferred charges and other assets were $3.7 million.
For fiscal years ended September 30, 2021 and September 30, 2020, the actuarial gains and losses affecting the benefit obligations were not
material.
The $11.5 million net actuarial loss balance at September 30, 2021 for the two frozen defined benefit pension plans in accumulated other
comprehensive income will be recognized and amortized into net periodic pension costs as an actuarial loss in future years. The estimated amount that will
be amortized from accumulated other comprehensive income into net periodic pension cost over the next fiscal year is $0.9 million.
Weighted-Average Assumptions Used in the Measurement of the Company’s Benefit
Obligation
Discount rate at year end date
Expected return on plan assets for the year ended
Rate of compensation increase
2021
2.65%
3.66%
N/A
September 30,
2020
2.45%
4.36%
N/A
2019
3.00%
4.67%
N/A
The expected return on plan assets is determined based on the expected long-term rate of return on plan assets and the market-related value of plan
assets determined using fair value.
The Company’s expected long-term rate of return on plan assets is updated at least annually, taking into consideration our asset allocation,
historical returns on the types of assets held, and the current economic environment. For fiscal year 2022, the Company’s assumption for return on plan
assets will be 3.8% per annum.
The discount rate used to determine net periodic pension expense for fiscal year 2021, 2020, and 2019 was 2.65%, 2.45%, and 3.00%, respectively.
The discount rate used by the Company in determining pension expense and pension obligations reflects the yield of high quality (AA or better rating by a
recognized rating agency) corporate bonds whose cash flows are expected to match the timing and amounts of projected future benefit payments.
The Plan’s objectives are to have the ability to pay benefit and expense obligations when due, to maintain the funded ratio of the Plan, to maximize
return within reasonable and prudent levels of risk in order to minimize contributions and charges to the profit and loss statement, and to control costs of
administering the Plan and managing the investments of the Plan. The target asset allocation of the Plan (currently 90% domestic fixed income, 7%
domestic equities and 2% international equities and 1% cash and cash equivalents) is based on a long-term perspective, and as the Plan gets closer to being
fully funded, the allocations have been adjusted to lower volatility from equity holdings.
The Company had no Level 2 or Level 3 pension plan assets during the two years ended September 30, 2021. The fair values and percentage of the
Company’s pension plan assets by asset category are as follows (in thousands):
September 30,
2021
2020
Asset Category
Corporate and U.S. government bond fund (1)
U.S. large-cap equity (1)
International equity (1)
Cash
Total
$
$
Level 1
Concentration
Percentage
90%
7%
2%
1%
100%
59,068
4,765
1,165
339
65,337
$
$
Level 1
Concentration
Percentage
90%
7%
2%
1%
100%
62,602
5,006
1,158
322
69,088
(1)
Represent investments in Vanguard funds that seek to replicate the asset category description.
The Company is not obligated to make a minimum required contribution in fiscal year 2022, and currently does not expect to make an optional
pension contribution.
F-34
Expected benefit payments over each of the next five years will total approximately $4.2 million per year. Expected benefit payments for the five
years thereafter will aggregate approximately $17.7 million.
15) Income Taxes
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. The CARES Act allows employers to
defer the payment of the employer's portion of Social Security taxes for period beginning March 27, 2020 and ending December 31, 2020 to years 2021 and
2022. The company has elected to defer the payment of its portion of Social Security taxes through September 30, 2021 of $5.2 million and recorded a
related deferred tax asset of $1.5 million at September 30, 2021.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted into law. The Tax Reform Act allows for the full
depreciation, in the year acquired, for certain fixed assets purchased between September 28, 2017 and December 31, 2022 (also known as 100% bonus
depreciation).
Income tax expense is comprised of the following for the indicated periods (in thousands):
Current:
Federal
State
Deferred
Federal
State
2021
Years Ended September 30,
2020
2019
$
$
16,077 $
6,237
$
17,083
7,086
8,263
3,098
33,675 $
(2,643)
(901)
$
20,625
7,921
4,722
(3,168)
(1,958)
7,517
The provision for income taxes differs from income taxes computed at the Federal statutory rate as a result of the following (in thousands):
Income from continuing operations before taxes
Provision for income taxes:
Tax at Federal statutory rate
State taxes net of federal benefit
Permanent differences
Change in valuation allowance
Other
$
$
$
F-35
2021
121,412 $
Years Ended September 30,
2020
2019
76,543 $
25,154
25,496 $
7,927
196
86
(30)
33,675 $
16,074 $
5,224
89
(113)
(649)
20,625 $
5,282
1,626
345
23
241
7,517
The components of the net deferred taxes for the years ended September 30, 2021 and September 30, 2020 using current tax rates are as follows (in
thousands):
Deferred tax assets:
Operating lease liabilities
Net operating loss carryforwards
Vacation accrual
Pension accrual
Allowance for bad debts
Insurance accrual
Inventory capitalization
Fair value of derivative instruments
Other, net
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Operating lease right-of-use assets
Property and equipment
Intangibles
Fair value of derivative instruments
Other, net
Total deferred tax liabilities
Net deferred taxes
September 30,
2021
2020
$
$
$
$
$
29,115 $
5,590
2,923
3,603
1,291
2,020
631
—
1,504
46,677
(3,976)
42,701 $
27,774 $
14,374
19,591
6,864
3,112
71,715 $
(29,014) $
29,997
5,620
2,931
3,807
1,653
2,283
641
3,556
1,208
51,696
(3,890)
47,806
28,492
14,305
19,091
—
3,145
65,033
(17,227)
In order to fully realize the net deferred tax assets, the Company’s corporate subsidiaries will need to generate future taxable income. 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. The net change in the total valuation allowance for the fiscal year ended September 30, 2021 was $0.1 million. The net
change in the total valuation allowance for the fiscal year ended September 30, 2020 was $(0.1) million. Based upon a review of a number of factors and all
available evidence, including recent historical operating performance, the expectation of sustainable earnings, and the confidence that sufficient positive
taxable income will continue in all tax jurisdictions for the foreseeable future, management concludes for the year ended September 30, 2021, it is more
likely than not that the Company will realize the full benefit of its deferred tax assets, net of existing valuation allowance related to State net operating loss
carryforwards at September 30, 2021.
As of January 1, 2021, the Company had State tax effected net operating loss carry forwards (“NOLs”) of approximately $1.8 million after
consideration of valuation allowances. The State NOLs, which will expire between 2023 and 2037, are generally available to offset any future taxable
income in certain states
At September 30, 2021, we did not have unrecognized income tax benefits.
We file U.S. Federal income tax returns and various state and local returns. A number of years may elapse before an uncertain tax position is
audited and finally resolved. For our Federal income tax returns we have four tax years subject to examination. In our major state tax jurisdictions of New
York, Connecticut, and Pennsylvania we have four years that are subject to examination. In the state tax jurisdiction 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.
F-36
16) Leases
The Company has entered into certain operating leases for office space, vehicles and other equipment with lease terms between one to fifteen
years, expiring between 2021 and 2033. Some of the Company’s real estate property lease agreements have options to extend the leases for up to ten years.
A summary of total lease costs and other information for the twelve months ended September 30, 2021 and September 30, 2020 is as follows:
(in thousands)
Lease cost:
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Other information:
Cash paid for amounts included in the measurement of lease
liabilities
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for new operating lease
liabilities
September 30,
2021
September 30,
2020
25,185 $
826
5,867
31,878 $
25,396
775
5,255
31,426
24,894 $
24,943
15,894 $
20,487
$
$
$
$
As of September 30, 2021, our operating leases had a weighted average remaining lease term of 6.6 years and a weighted average discount rate
of 4.8%. Maturities of noncancelable operating lease liabilities as of September 30, 2021 are as follows:
(in thousands)
2022
2023
2024
2025
2026
Thereafter
Total undiscounted lease payments
Less imputed interest
Total lease liabilities
September 30,
2021
21,920
19,801
17,892
15,970
12,771
31,221
119,575
(19,110)
100,465
$
$
17) Supplemental Disclosure of Cash Flow Information
(in thousands)
Cash paid during the period for:
Income taxes, net
Interest
18) Commitments and Contingencies
2021
Years Ended September 30,
2020
2019
$
$
21,936 $
8,928 $
25,292 $
11,722 $
5,133
12,601
The Company’s operations are subject to the operating hazards and risks normally incidental to handling, storing and transporting and otherwise
providing for use by consumers hazardous liquids such as home heating oil and propane. In the ordinary course of business, the Company is a defendant in
various legal proceedings and litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably
estimable. We do not believe these matters, when considered individually or in the aggregate, could
F-37
reasonably be expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.
The Company maintains insurance policies with insurers in amounts and with coverages and deductibles we believe are reasonable and prudent.
However, the Company cannot assure that this insurance will be adequate to protect it from all material expenses related to current and potential future
claims, legal proceedings and litigation, as certain types of claims may be excluded from our insurance coverage. If we incur substantial liability and the
damages are not covered by insurance, or are in excess of policy limits, or if we incur liability at a time when we are not able to obtain liability insurance,
then our business, results of operations and financial condition could be materially adversely affected.
19) Earnings per Limited Partner Units
The following table presents the net income allocation and per unit data:
Basic and Diluted Earnings Per Limited Partner:
(in thousands, except per unit data)
Net income
Less General Partners’ interest in net income
Net income available to limited partners
Less dilutive impact of theoretical distribution of
earnings *
Limited Partner’s interest in net income
Per unit data:
Basic and diluted net income available to limited partners
Less dilutive impact of theoretical distribution of
earnings *
Limited Partner’s interest in net income under
Years Ended September 30,
2020
2019
2021
$
87,737
689
87,048
$
55,918
377
55,541
17,637
95
17,542
13,163
73,885
$
6,812
48,729
$
—
17,542
2.15
$
1.22
$
0.35
0.33
1.82
$
0.15
1.07
$
—
0.35
$
$
$
$
Weighted average number of Limited Partner units outstanding
40,553
45,656
50,814
*
In any accounting period where the Company’s aggregate net income exceeds its aggregate distribution for such period, the Company is required to
present net income per limited partner unit as if all of the earnings for the period were distributed, based on the terms of the Partnership agreement,
regardless of whether those earnings would actually be distributed during a particular period from an economic or practical perspective. This
allocation does not impact the Company’s overall net income or other financial results.
F-38
20) Selected Quarterly Financial Data (unaudited)
(in thousands - except per unit data)
Sales
Gross profit for product, installation and service
Operating income (loss)
Income (loss) before income taxes
Net income (loss)
Limited Partner interest in net income (loss)
Net income (loss) per Limited Partner unit:
Basic and diluted (a)
(in thousands - except per unit data)
Sales
Gross profit for product, installation and service
Operating income (loss)
Income (loss) before income taxes
Net income (loss)
Limited Partner interest in net income (loss)
Net income (loss) per Limited Partner unit:
Basic and diluted (a)
Three Months Ended
$
Dec. 31,
2020
373,320 $
131,870
54,786
52,688
37,860
37,564
Mar. 31,
2021
604,115 $
226,202
119,695
117,316
85,164
84,483
Jun. 30,
2021
283,100 $
70,091
(13,764)
(15,963)
(12,054)
(11,956)
$
Sep. 30,
2021
236,551
49,491
(30,517)
(32,629)
(23,233)
(23,043)
Total
1,497,086
477,654
130,200
121,412
87,737
87,048
$
0.74 $
1.71 $
(0.30) $
(0.58) $
1.82
Three Months Ended
$
Dec. 31,
2019
508,945 $
147,603
42,451
39,537
27,755
27,563
Mar. 31,
2020
543,063 $
196,440
86,117
83,108
58,408
57,999
Jun. 30,
2020
232,155 $
84,159
498
(2,051)
(46)
(45)
Sep. 30,
2020
183,295 $
46,818
(36,098)
(44,051)
(30,199)
(29,976)
Total
1,467,458
475,020
92,968
76,543
55,918
55,541
$
0.49 $
1.03 $
— $
(0.68) $
1.07
(a)
The sum of the quarters do not add-up to the total due to the weighting of Limited Partner Units outstanding, rounding or the theoretical effects of
FASB ASC 260-10-45-60 to Master Limited Partners earnings per unit.
21) Subsequent Events
Quarterly Distribution Declared
In October 2021, we declared a quarterly distribution of $0.1425 per unit, or $0.57 per unit on an annualized basis, on all Common Units with
respect to the fourth quarter of fiscal 2021, paid on November 9, 2021, to holders of record on November 1, 2021. The amount of distributions in excess of
the minimum quarterly distribution of $0.0675, were distributed in accordance with our Partnership Agreement, subject to management incentive
compensation plan. As a result, $5.5 million was paid to the Common Unit holders, $0.3 million to the General Partner unit holders (including $0.2 million
of incentive distribution as provided in our Partnership Agreement) and $0.2 million to management pursuant to the management incentive compensation
plan which provides for certain members of management to receive incentive distributions that would otherwise be payable to the General Partner.
Common Units Repurchased and Retired
In October and November 2021, in accordance with the Repurchase Plan, the Company repurchased and retired 0.4 million Common Units at an
average price paid of $10.79 per unit.
Acquisition
Subsequent to September 30, 2021, the Company purchased the customer list and assets of three heating oil dealers for an aggregate amount of
approximately $3.3 million. The purchase price was allocated $2.9 million to goodwill and intangible assets, $1.2 million to fixed assets and reduced by
$0.8 million for working capital credits.
F-39
STAR GROUP, L.P. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Schedule I
(in thousands)
Balance Sheets
ASSETS
Current assets
Cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
Investment in subsidiaries (a)
Total Assets
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accrued expenses
Total current liabilities
Partners’ capital
Total Liabilities and Partners’ Capital
September 30,
2021
2020
$
$
$
$
45 $
353
398
277,817
278,215 $
11 $
11
278,204
278,215 $
45
313
358
255,465
255,823
3
3
255,820
255,823
(a)
Investments in Star Acquisitions, Inc. and subsidiaries are recorded in accordance with the equity method of accounting.
F-40
STAR GROUP, L.P. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Schedule I
(in thousands)
Statements of Operations
Revenues
General and administrative expenses
Operating loss
Net loss before equity income
Equity income of Star Acquisitions Inc. and subs
Net income
2021
Years Ended September 30,
2020
2019
$
$
— $
1,602
(1,602)
(1,602)
89,339
87,737 $
— $
1,327
(1,327)
(1,327)
57,245
55,918 $
—
1,377
(1,377)
(1,377)
19,014
17,637
F-41
STAR GROUP, L.P. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Schedule I
(in thousands)
Statements of Cash Flows
Cash flows provided by operating activities:
Net cash provided by operating activities (a)
Cash flows provided by investing activities:
Net cash provided by investing activities
Cash flows used in financing activities:
Distributions
Unit repurchase
Net cash used in financing activities
Net decrease in cash
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
(a) Includes distributions from subsidiaries
2021
Years Ended September 30,
2020
2019
$
66,272 $
62,877 $
76,942
—
—
—
(23,448)
(42,824)
(66,272)
—
45
45 $
(24,451)
(38,431)
(62,882)
(5)
50
45 $
(25,593)
(51,353)
(76,946)
(4)
54
50
66,272 $
62,877 $
76,942
$
$
F-42
STAR GROUP, L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended September 30, 2021, 2020, 2019
(in thousands)
Schedule II
Year
2021
2020
2019
Description
Allowance for doubtful accounts
Allowance for doubtful accounts
Allowance for doubtful accounts
(a)
Bad debts written off (net of recoveries).
F-43
Balance at
Beginning
of Year
Charged
to Costs &
Expenses
Other
Changes
Add (Deduct)
Balance at
End of Year
$
$
$
6,121 $
8,378 $
8,002 $
(248) $
3,441
$
9,541 $
(1,094) (a) $
(5,698) (a)
$
(9,165) (a) $
4,779
6,121
8,378
Exhibit 21
Company Subsidiaries
A.P. Woodson Company—District of Columbia
CFS LLC—Pennsylvania
Champion Energy LLC—Delaware
Columbia Petroleum Transportation, LLC—Delaware
Griffith Energy Services, Inc.—New York
Griffith – Allied Trucking, LLC—Delaware
Hoffman Fuel Company of Danbury—Delaware
Meenan Holdings LLC—Delaware
Meenan Oil LLC—Delaware
Meenan Oil Co., L.P.—Delaware
Milro Group LLC—Delaware
Minnwhale LLC—New York
Ortep of Pennsylvania, Inc.—Pennsylvania
Petro Holdings, Inc.—Minnesota
Petro Plumbing Corporation—New Jersey
Petro, Inc.—Delaware
Petroleum Heat and Power Co., Inc.—Minnesota
Region Oil Plumbing, Heating and Cooling Co., Inc.—New Jersey
Richland Partners, LLC—Pennsylvania
Rye Fuel Company—Delaware
Star Acquisitions, Inc.—Minnesota
Woodbury Insurance Co., Inc.—Connecticut
CERTIFICATIONS
Exhibit 31.1
I, Jeffrey M. Woosnam, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Star Group, L.P. (“Registrant”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information and;
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: December 8, 2021
/s/ JEFFREY M. WOOSNAM
Jeffrey M. Woosnam
President and Chief Executive Officer
Star Group, L.P.
CERTIFICATIONS
Exhibit 31.2
I, Richard F. Ambury, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Star Group, L.P. (“Registrant”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrants’ other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(c)
(d)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information and;
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: December 8, 2021
/S/ RICHARD F. AMBURY
Richard F. Ambury
Chief Financial Officer
Star Group, L.P.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Star Group, L.P. (the “Company”) on Form 10-K for the year ended September 30, 2021 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey M. Woosnam, President and Chief Executive Officer of the Company,
certify to my knowledge pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, following due inquiry,
I believe that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the
Company.
A signed original of this written statement required by Section 906 has been provided to Star Group, L.P. and will be retained by Star Group, L.P.
and furnished to the Securities and Exchange Commission or its staff upon request.
Date: December 8, 2021
By:
/s/ JEFFREY M. WOOSNAM
Jeffrey M. Woosnam
President and Chief Executive Officer
Star Group, L.P.
STAR GROUP, L.P.
By: KESTREL HEAT, LLC (General Partner)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Star Group, L.P. (the “Company”) on Form 10-K for the year ended September 30, 2021 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Richard F. Ambury, Chief Financial Officer of the Company, certify to my
knowledge pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, following due inquiry, I believe
that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the
Company.
A signed original of this written statement required by Section 906 has been provided to Star Group, L.P. and will be retained by Star Group, L.P.
and furnished to the Securities and Exchange Commission or its staff upon request.
Date: December 8, 2021
By:
/S/ RICHARD F. AMBURY
Richard F. Ambury
Chief Financial Officer
Star Group, L.P.
STAR GROUP, L.P.
By: KESTREL HEAT, LLC (General Partner)