1
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
For the fiscal year ended September 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-14129
STAR GROUP, L.P.
(Exact name of registrant as specified in its charter)
Delaware
06-1437793
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
9 West Broad Street, Suite 310, Stamford, Connecticut
06902
(Address of principal executive office)
(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
Trading
Symbol(s)
Name of each exchange on which registered
Common Units
SGU
New York Stock Exchange
Common Unit Purchase Rights
N/A
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
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant 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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an
error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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, 2024 was approximately $313,349,949
As of November 30, 2024, the registrant had 34,577,855 common units outstanding.
Documents Incorporated by Reference: None
2
STAR GROUP, L.P.
2024 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1.
Business
3
Item 1A.
Risk Factors
13
Item 1B.
Unresolved Staff Comments
24
Item 1C.
Cybersecurity
24
Item 2.
Properties
25
Item 3.
Legal Proceedings—Litigation
25
Item 4.
Mine Safety Disclosures
25
PART II
Item 5.
Market for the Registrant’s Units and Related Matters
26
Item 6.
(Reserved)
27
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
42
Item 8.
Financial Statements and Supplementary Data
42
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
42
Item 9A.
Controls and Procedures
42
Item 9B.
Other Information
43
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
43
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
44
Item 11.
Executive Compensation
49
Item 12.
Security Ownership of Certain Beneficial Owners and Management
60
Item 13.
Certain Relationships and Related Transactions
61
Item 14.
Principal Accounting Fees and Services
64
PART IV
Item 15.
Exhibits and Financial Statement Schedules
65
Item 16.
Form 10-K Summary
65
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PART I
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 the impact of geopolitical events on wholesale product cost volatility, the price and supply of
the products that we sell, our ability to purchase sufficient quantities of product to meet our customer’s needs, rapid increases in levels of inflation, the
consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, the effect of weather conditions on our financial performance,
our ability to obtain new customers and retain existing customers, our ability to make strategic acquisitions, the impact of litigation, natural gas conversions
and electrification of heating systems, pandemic and future global health pandemics, recessionary economic conditions, 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, global supply chain issues, labor shortages and new technology, including alternative methods for heating and cooling residences. 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. Actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but
are not limited to, those set forth in this Report under the headings “Risk Factors,” “Business Strategy” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” Important factors that could cause actual results to differ materially from our expectations (“Cautionary
Statements”) are disclosed in this Report. 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. 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. Unitholders will receive a Form 1099-DIV and will not receive a Schedule K-1
as in tax years prior to December 31, 2017. 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, 2024, we had outstanding 34.6
million common partner units (NYSE: “SGU”) representing a 99.1% limited partner interest in Star, and 0.3 million general partner units, representing a
0.9% general partner interest in Star.
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The following chart depicts the ownership of Star as of November 30, 2024:
Star Group, L.P.
Limited Partners
Common Units
99.1%
General Partner (Kestrel Heat)
General Partner Units
0.9%
Public Unitholders - Common Units
88.1%
Officers and Directors - Common Units
11.9%
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 an indirect, wholly owned subsidiary of Star. PH&P is the borrower and Star is the guarantor
of the seventh amended and restated credit agreement’s $210 million five-year senior secured term loan and the $400 million ($475 million
during the heating season of December through April of each year) revolving credit facility, both due September 27, 2029. (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.
Legal Structure
The following chart summarizes our structure as of September 30, 2024.
Star Group, L.P.
Star Acquisitions, Inc.
Woodbury Insurance Co., Inc.
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.
Meenan Oil LLC
Champion Energy LLC
Griffith Energy Services, Inc.
Denotes borrower in the asset based lending facility and the term loan, which are guaranteed by Star Group, L.P. and the other entities listed above, excluding
Woodbury Insurance Co., Inc.
Although Star Group, L.P. is a partnership for state law purposes, it has elected to be treated as a corporation, rather than a partnership, for federal income tax purposes
(commonly referred to as a "check-the-box election").
5
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, 2024, we sold home heating oil and propane to approximately 404,600 full
service residential and commercial customers and 61,700 customers on a delivery only basis. Approximately 266,000 of these customers, or 57%, are
located in the New York, New Jersey, and Connecticut. 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 26,800 customers. We install, maintain, and
repair heating and air conditioning equipment and to a lesser extent provide these services outside of our heating oil and propane customer base including
20,800 service contracts for natural gas and other heating systems. During fiscal 2024, total sales were comprised of approximately 61% from home heating
oil and propane, 21% from other petroleum products, the majority of which is diesel and gasoline, and 18% 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, 7-days-a-
week, 52 weeks a year. These services are an integral part of our business, and are intended to increase 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 31% 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 risks 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.
Currently, we have heating oil and/or propane customers in the following states: Connecticut, Delaware, Maryland, Massachusetts, Michigan, 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 2022), these regions account for
82% (4.1 million of 5.0 million) of the households in the United States where heating oil is the main space-heating fuel and 19% (4.1 million of 21.9
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 and electricity, 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 and electricity have ranged between 1.1% and 1.6%
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 fossil fuels that we sell.
6
The retail home heating oil industry is highly fragmented, characterized by a large number of relatively small, independently owned and operated
local distributors. Some businesses 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 or decreases 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 changes through to customers. We believe this is especially true in the propane business. In these cases, significant decreases in per gallon margins
may result when prices rise. 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:
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 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.
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Pursue environmental sustainability opportunities We are committed to pursuing initiatives that reduce greenhouse gas emissions across our
product offerings, by offering biodiesel blended products and by 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 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. Our operating and financial plans are based upon the published weather data for the last ten years.
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 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 losses are the result of a number of factors, including
price competition, move outs, credit losses and conversions to natural gas and electrified heating systems. (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 78% of our product customer base, with propane customers comprising another 17% and motor
fuel and other petroleum product customers making up the remaining 5%. (During fiscal 2024, we sold 253.4 million gallons of home heating oil and
propane and 129.1 million gallons of motor fuel and other petroleum products.)
8
Our full service home heating oil customer base is comprised of 96% residential customers and 4% 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 31% 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.
Percentage of Residential Home Heating Oil Customers
September 30,
Pricing Programs
2024
2023
2022
2021
2020
Variable
53.2%
55.6%
57.0%
55.0%
54.4%
Ceiling
36.3%
37.8%
37.6%
39.0%
38.5%
Fixed
10.5%
6.6%
5.4%
6.0%
7.1%
100.0%
100.0%
100.0%
100.0%
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. Sales to residential customers ordinarily
generate higher per gallon margins than sales to 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.
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., Mieco LLC 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.
9
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 products for delivery in either barge, pipeline or truckload quantities. As of September 30, 2024 we had contracts with
approximately 136 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 New York Mercantile Exchange ("NYMEX"), Platts American Gulf Coast or
Mont Belvieu based physical supply contracts for approximately 76% of our expected home heating oil and propane requirements for our full service
residential and commercial customers for the fiscal 2025 heating season. For the fiscal year 2025 heating season, approximately 74% of the Company’s
contracted home heating oil volume with suppliers has a biofuel component. We also have entered into NYMEX or Platts American Gulf Coast based
physical supply contracts for approximately 46% of our expected diesel and gasoline requirements for fiscal 2025.
During fiscal 2024, Shell Trading and Shell Oil Products US provided approximately 16% of our petroleum purchases and Motiva Enterprises LLC
provided 15% of our petroleum product purchases. During fiscal 2023, Shell Trading and Shell Oil Products US provided approximately 18% of our
petroleum purchases and Motiva Enterprises LLC provided 14% of our petroleum product purchases, respectively. Our supply contracts typically have
terms of 6 to 12 months. For fiscal 2025, approximately 24% of our physical supply contracts are with Motiva Enterprises LLC. All of our 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
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.
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 customer conservation and
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 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, 2020, through 2024, on a quarterly basis, is illustrated in the following chart (price per
gallon):
Fiscal 2024 (a)
Fiscal 2023
Fiscal 2022
Fiscal 2021
Fiscal 2020
Quarter Ended
Low
High
Low
High
Low
High
Low
High
Low
High
December 31
$
2.51 $
3.22 $
2.78
$
4.55 $
2.06 $
2.59 $
1.08 $ 1.51 $ 1.86 $ 2.05
March 31
2.53
2.96
2.61
3.55
2.36
4.44
1.46 1.97 0.95 2.06
June 30
2.29
2.77
2.23
2.73
3.27
5.14
1.77 2.16 0.61 1.22
September 30
2.06
2.63
2.38
3.48
3.13
4.01
1.91 2.34 1.08 1.28
(a)
On November 30, 2024, the NYMEX ultra low sulfur diesel contract closed at $2.19 per gallon.
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 2024, the Company acquired one propane and four heating oil businesses for approximately $49.4 million in cash. The gross purchase
price was allocated $40.4 million to intangible assets, $13.7 million to goodwill, $4.9 million to fixed assets and reduced by $9.6 million of negative
working capital.
10
During fiscal 2023, the Company acquired one propane and two heating oil businesses for approximately $19.8 million in cash. The gross purchase
price was allocated $10.4 million to intangible assets, $8.0 million to goodwill, $2.3 million to fixed assets and reduced by $0.9 million of negative working
capital.
During fiscal 2022, the Company acquired five heating oil businesses for approximately $15.6 million (using $13.1 million in cash and assuming
$2.5 million of liabilities). The gross purchase price was allocated $7.3 million to intangible assets, $3.1 million to goodwill, $5.6 million to fixed assets
and reduced by $0.4 million of negative 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 portion of our office personnel have worked remotely. 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 resources for professional development including technical training,
feedback and performance reviews from supervisors, and management training.
As of September 30, 2024, we had 3,039 employees, of whom 909 were office, clerical and customer service personnel; 834 were equipment
technicians; 474 were fuel delivery drivers and mechanics; 540 were management and 282 were employed in sales. Due to the seasonal nature of our
business and depending on the demands of the 2025 heating season, we anticipate that we will augment our current staffing levels during the heating season
from among the 295 employees on temporary leave of absence as of September 30, 2024. As of September 30, 2024, considering seasonal and employees
that are on leave, we had 1,362 (39%) employees that are represented by 62 different collective bargaining agreements with local chapters of labor unions.
There are 20 collective bargaining agreements up for renewal in fiscal 2025, covering approximately 419 employees (12%). We believe that our relations
with both our union and non-union employees are generally satisfactory.
Government Regulations
Regulations in Response to Climate Change. There is increasing attention in the United States and worldwide concerning the issue of climate
change and the effect of greenhouse gas (“GHG”) emissions, in particular, from the combustion of carbon-based fossil fuels. Our heating oil and propane
products are widely considered to be fossil fuels that produce GHG emissions. To combat the cause of global warming domestically, President Biden
identified climate change as one of his administration’s top priorities and pledged to seek measures that would pave the path for the U.S. to achieve net zero
GHG emissions by 2050. In April 2021, President Biden announced the administration’s plan to reduce the U.S. GHG emissions by at least 50% by 2030.
These environmental goals earned a prominent place in the Biden administration’s $1.2 trillion infrastructure bill, which was signed into law on November
15, 2021. On August 16, 2022, President Biden signed the Inflation Reduction Act which aims to reduce GHG emissions by offering tax and other
financial incentives designed to encourage homeowners to switch to alternative sources of energy other than those we sell, including a tax rebate of up to
$8,000 per qualified household for the installation of an electric heat pump for a home’s primary heat source. States must apply for rebate funding with the
U.S. Department of Energy and adopt and administer energy rebate programs within their respective states before homeowners can apply and receive tax
rebates under the program. As of October 2024, two (2) states within our operating footprint -- New York and Rhode Island – have launched programs to
distribute homeowner rebates. The timing of when the other states within our operating footprint will adopt energy rebate programs in order to distribute
homeowner rebates remains uncertain.
11
Numerous states and municipalities have also adopted laws and policies on climate change and emission reduction targets. For example, on July 18,
2019, the State of New York (location of approximately 44% of our residential home heating oil and propane customers) 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 GHG emissions in the state. In December 2022, New York
approved the Scoping Plan, which details actions required to advance directives stated in the CLCPA and to enable New York to limit GHG emissions as a
percentage of 1990 emissions to 60% by 2030 and to 15% by 2050. However, the CLCPA gave the New York Department of Energy Conservation until
January 1, 2024, to promulgate regulations to ensure that the State of New York meets the CLCPA’s GHG emission limits as outlined in the Scoping Plan.
The State of New York has not yet adopted regulations to implement the CLCPA’s GHG emissions despite the January 1, 2024 deadline for doing so.
On May 2, 2023, the State of New York adopted its 2024 fiscal year budget, which included amendments to New York’s Energy Law and to its
Executive Law that prohibit “the installation of fossil-fuel equipment and building systems” in any new buildings under seven stories, except for a new
commercial or industrial building greater than 100,000 square feet in conditioned floor area beginning December 31, 2025 (the “Fossil Fuel Ban”). The
Fossil Fuel Ban applies to equipment that uses heating oil, propane and natural gas for combustion and will then expand to all new buildings beginning
January 1, 2029. Specifically, the Energy Law and the Executive Law direct the New York State Fire Prevention and Building Code Council (the “Code
Council”) to include the Fossil Fuel Ban on installation of fossil-fuel burning equipment and building systems in new buildings in the State of New York’s
Energy Conservation Construction Code (the “Energy Code”) and in the Uniform Fire Prevention and Building Code (the “Building Code”). We
understand that New York Building Code Council is set to integrate the Fossil Fuel Ban into its 2025 Building Code update.
On October 12, 2023, a coalition of businesses, trade associations and labor unions including the National Propane Gas Association, New York
Propane Gas Association and Mulhern Gas Co., filed a federal lawsuit in the Northern District of New York (Mulhern Gas Co., Inc. et al v. Rodriguez, et
al., Case No. 1:23-cv-1267) claiming that the Fossil Fuel Ban violates federal law. The lawsuit seeks to declare the Fossil Fuel Ban invalid and to block its
enforcement on the grounds that it is preempted by the federal Energy Policy and Conservation Act ("EPCA"). It relies on a recent decision by the U.S.
Court of Appeals for the Ninth Circuit (California Restaurant Association v. City of Berkeley) which held that a ban on gas piping in a new building in
Berkeley, California was invalid on the basis that it concerned the energy use of appliances covered by the EPCA and was therefore preempted by federal
law. As this legal challenge is ongoing, it remains uncertain what impact, if any, it will have on the Company’s operations in the State of New York.
In May 2019, New York City (location of approximately 3% of our residential home heating oil and propane customers) enacted Local Law 97 as a
part of the Climate Mobilization Act aimed at reducing GHG emissions by 80% from commercial and residential buildings by 2050. Starting in 2024, this
law will place carbon caps on most buildings larger than 25,000 square feet. In addition, in December 2021, New York City passed Local Law 154 of 2021,
which will phase out fossil fuel usage in newly constructed residential and commercial buildings starting in 2024 for lower-rise buildings, and in 2027 for
taller buildings. With few exceptions, all new buildings constructed in New York City must be fully electric by 2027.
In March 2021, the State of Massachusetts (location of approximately 4% of our residential home heating oil and propane customers) signed into
law “An Act Creating A Next-Generation Roadmap for Massachusetts Climate Policy” (the “2021 Climate Law”) that establishes a 2030 limit of at least a
50% reduction in GHG emissions below the 1990 GHG emissions baseline and requires the Secretary of Energy and Environmental Affairs to set interim
emissions limits and sector-specific sublimits every five years. The 2021 Climate Law tasks the Massachusetts Department of Environmental Protection
(the “MassDEP”) with developing a high-level program to meet the emissions limit for residential, commercial, and industrial heating and identified a
Clean Heat Standard (“CHS”) as a regulatory option for addressing this requirement. The proposed regulations released by MassDEP in May 2023 could
require, among other things, heating energy suppliers to demonstrate the conversion of approximately 3% of their customers to electric heat each year. Such
proposed regulations, if adopted, could dramatically negatively impact the Company’s Massachusetts operations and impose onerous reporting
requirements on the Company. The proposed regulations are in the comment period.
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On August 11, 2022, the State of Massachusetts signed into law “An Act Driving Clean Energy and Offshore Wind” (the “2022 Climate Law”). The
2022 Climate Law establishes a new pilot program to allow up to 10 municipalities to require through zoning that new construction or substantial
renovation projects will be fossil-fuel free, and instructs the State’s Department of Energy Resources (“DOER”) to adopt regulations to structure the pilot
program. The DOER adopted final regulations structuring the pilot program in July 2023. The purpose of the pilot program is to allow the DOER to study
the implementation of fossil fuel bans in municipalities and evaluate future best practices on decarbonization. As of January 2024, seven municipalities
have been approved to begin enforcing the new zoning requirements.
These measures, which have or may have the effect of reducing or eliminating GHG emissions from fossil fuel-burning vehicles, boilers and
furnaces, could significantly negatively impact the Company’s operations in New York City, New York State and Massachusetts, which together 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, such as
Connecticut, Rhode Island and New Jersey, have adopted similar GHG laws or have otherwise announced GHG reduction targets. However, while we
cannot predict at this time whether and in what manner the New York CLCPA, the Massachusetts 2021 Climate Law, the Massachusetts 2022 Climate Law,
or other state and local GHG laws or targets could impact the Company, these measures could over time have a material negative impact on the Company.
Environmental and Safety Regulations. We are also 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 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 by 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.
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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, results of operations and cash available for distributions to our
unitholders, 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 us.
Wholesale Product Price Volatility and Supply Risks Associated with our Business
Fluctuations 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:
•
reduced profit margins;
•
customer conservation;
•
customer attrition due to customers converting to lower cost heating products or suppliers;
•
reduced liquidity as a result of higher net receivables including customer credit balances, and/or inventory balances as we must fund a portion
of any increase in receivables, inventory and hedging costs from our own cash resources and thereby reduce or eliminate funds that would
otherwise be available for distributions and other purposes;
•
higher interest expense as a result of increased working capital borrowing to finance higher receivables and/or inventory balances; and higher
bad debt expense and credit card processing costs as a result of higher selling prices.
Our business 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 increases in the wholesale product cost caused by changes in supply, geopolitical forces and other market
conditions. Although our wholesale product costs are closely linked to the price of diesel fuel, diesel fuel prices do not always correspond to increases or
decreases in consumer demand for our products. Consequently, our wholesale product prices may rise even though demand for our heating oil products is
down due to, among other things, warm winter temperatures. Significant increases in product costs result in higher operating expenses, such as credit card
fees, bad debt expense, and vehicle fuels, and also lead to higher working capital requirements, including higher premiums and cash requirements for some
of our hedging instruments. In certain cases, we cannot pass on to our customers immediately or in full all cost increases by increasing our retail sales
prices. This, in turn, negatively affects our profit margins. We cannot predict with any certainty the impact of periods of high wholesale product costs on
future profit margins.
During periods of high wholesale product costs, the prices we charge our customers generally increase. High prices can lead to customer
conservation and attrition, resulting in reduced demand for our products. Additionally, 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. Increases in wholesale product prices may also slow our customer
collections as customers are more likely to delay the payment of their bills, leading to higher accounts receivable.
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 or
cash available for distributions to unitholders.
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,
which may adversely impact our gross profit and operating results.
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If, due to supply constraints or shortages, we cannot purchase sufficient quantities of products to meet our customer’s needs, our business and
operations will be adversely affected.
Constraints in physical product supplies 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, and could negatively
impact our financial performance or financial condition. Constraints have been and could be caused by numerous factors including disruption within our
supply chain network due to unforeseen events beyond our control. 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 and related shut-
downs, re-openings, or other actions by the government; civil unrest; or other factors beyond our control. In addition, constraints in physical product
supplies could be caused by s, imbalances in supply and demand of liquid product, exacerbated by geopolitical forces, such as the wars in the Ukraine and in
the Middle East. Further, backwardated energy markets, which exist when the current market price of wholesale product is higher than the futures price,
have caused and may in the future cause suppliers to reduce physical inventories. We expect to cover a substantial majority of our expected heating oil and
propane needs during the heating season for our full service residential and commercial customers with physical supply contracts and inventory on-hand at
the beginning of the heating season. The remainder of our customer’s needs are satisfied through spot product purchases. During periods when supplies are
constrained, we have paid and may continue to pay significant premiums over the wholesale product cost to ensure prompt delivery of spot purchases. In
certain cases, these premium payments cannot be passed on to our customers, thereby reducing our profit margins.
If service at our third-party terminals, the common carrier pipelines used or the barge companies we hire to move product is interrupted, our
operations would be adversely affected.
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, the common carrier pipelines used or the barge
companies that we hire to move product would adversely affect our ability to obtain product.
The risk of global terrorism, political unrest and war 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 debt or equity capital and our future growth. 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.
Our hedging strategy may adversely affect our liquidity.
We purchase derivatives, futures contracts and swaps of diesel fuel primarily from members of our lending group and Cargill 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 either upfront or when they expire. Any cash
payment reduces our liquidity, as we must pay for the option before any sales are made to the customer. Mark-to-market exposure with our bank group
reduces our borrowing base and as such can reduce the amount available to us under our credit agreement.
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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 arrangements 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 concurrently purchase option
contracts, swaps and futures contracts for diesel fuel covering a substantial majority of the heating oil that we expect to sell to these price-protected
customers. The price of heating oil is closely linked to the price of diesel fuel. The amount of home heating oil volume that we hedge per price-protected
customer with diesel fuel derivatives is based upon the estimated fuel consumption per average customer, per month by location. 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 warm winters and early terminations by price protected
customers), we may incur additional hedging costs which reduce our gross profit margins. 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 price 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. 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.
We rely on the continued solvency of our wholesale product suppliers and derivatives, insurance and weather hedge counterparties.
If one of our wholesale product suppliers were to fail, our liquidity, results of operations and financial condition could be materially adversely
impacted, as we may be required to purchase product from other sources which may be at higher prices than we were prepared to pay. 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 counterparties were to fail, we would lose the protection of our weather
hedge contract.
Risks Related to Customer Attrition, Competition, and Demand for Our Products
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, losses and net attrition from fiscal year 2020 to fiscal year 2024. 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 or lost at newly acquired businesses
are included in these calculations from the point of closing going forward. Customer attrition percentage
16
calculations include customers added through acquisitions in the denominators of the calculations on a weighted average basis from the closing date.
Fiscal Year Ended September 30,
2024
2023
2022
2021
2020
Gross customer gains
9.8%
12.0%
11.9%
10.7%
12.2%
Gross customer losses
14.0%
15.6%
15.6%
14.6%
15.6%
Net attrition
(4.2%)
(3.6%)
(3.7%)
(3.9%)
(3.4%)
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, wholesale product price volatility, price competition, warmer than
normal weather, customer relocations and home sales/foreclosures, credit worthiness, service disruptions, and conversions to natural gas and electricity.
Periods of high wholesale product costs due to energy market volatility and inflation have added to our difficulty in reducing net customer attrition.
Warmer than normal weather has also contributed to an increase in attrition as customers perceive less need for a full-service provider like ourselves.
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, this will adversely impact our net customer attrition and, consequently, the Company’s near term
profitability, liquidity and cash flow.
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 existing customers and/or fail to acquire new customers, which would have a material adverse effect on our business,
operating results and financial condition.
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, such as electric heat pumps, have adversely affected the demand for our 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.
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Our operating results will be adversely affected if we experience significant net customer attrition from conversions to alternative energy products,
principally natural gas or electricity.
The following table depicts our estimated customer losses to natural gas and electricity conversions for the last five fiscal years. Losses to natural
gas and electricity in our footprint for the home heating oil industry could be greater or less than our estimates.
Fiscal Year Ended September 30,
2024
2023
2022
2021
2020
Customer losses to natural gas conversion and electricity
(1.4)%
(1.6)%
(1.5)%
(1.1)%
(1.1)%
In addition to our direct customer losses to natural gas and electricity competition, any conversion to natural gas or electricity 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, we will not be able to replace or grow our declining customer base.
Generally, heating oil and propane are secondary energy choices for new housing construction, because natural gas is usually selected when the
infrastructure exists. In certain areas in our operating footprint, state and local legislatures are mandating using electricity in new building construction, thus
displacing heating systems using fossil fuels, such as heating oil and propane. As such, our industry is declining. Accordingly, our ability to maintain or
grow our customer base 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 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.
Our acquisition activities could result in operational difficulties, unrecoverable costs and other negative consequences, any of which may adversely
impact our financial condition and results of operations.
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 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.
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 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. See “We face possible risks and costs associated with the
effects of changes in climate and severe weather” in these Risk Factors. 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. Although we have entered into weather hedges for fiscal 2025 and in prior years' periods,
there can be no assurance that weather hedge contracts on historical terms and prices will continue to be available past fiscal 2025. There can be no
assurance that our weather hedge contracts,
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if any, will fully or substantially offset the adverse effects of warmer weather on our business and operating results or that colder weather will result in
enough profit to offset our hedging costs.
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 and wholesale product price volatility, generally
cannot be made up by any significant profitability improvements in the results of the third and fourth quarters.
We face possible risks and costs associated with effects of changes in climate and severe weather.
We cannot predict changes in climate. The physical effects of changes in climate could have a material adverse effect on our business and
operations. 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. To the extent that changes in climate impact weather patterns, our markets could experience severe weather. If
the frequency or magnitude of severe weather conditions or natural disasters such as hurricanes, blizzards or earthquakes increase, as a result of changes in
climate or for other reasons, our results of operations and our financial performance could be negatively impacted by the extent of damage to our facilities
or to our customers’ residential homes and business structures, or of disruption to the supply or delivery of the products we sell.
Risks Related to Regulatory and Environmental Matters - See also Item 1 “Business – Government Regulations”
Federal, state and local legislation in response to climate change has the potential to adversely impact the Company’s operations and reduce
demand for our products and services.
There is increasing attention in the United States and worldwide concerning the issue of climate change and the effect of greenhouse gas (“GHG”)
emissions, from the combustion of carbon-based fossil fuels. Our heating oil and propane products are widely considered to be fossil fuels that produce
GHG emissions. To combat the cause of global warming domestically, President Biden identified climate change as one of his administration’s top
priorities and pledged to seek measures that would pave the path for the U.S. to achieve net zero GHG emissions by 2050. On August 16, 2022, President
Biden signed the Inflation Reduction Act which aims to reduce GHG emissions by offering tax and other incentives desired to encourage homeowners to
switch to alternative sources of energy than the ones we sell. In addition, the State of New York, where a majority of our operations are located,
Massachusetts, Rhode Island and Connecticut and certain municipalities in our operating footprint have adopted laws, regulations and policies addressing
climate change and restricting GHG emissions from fossil fuel burning systems. For additional information about climate change regulations affecting us,
See Item 1 “Business – Government Regulations” for a summary of certain laws, regulations and policies adopted by states and municipalities in our
operating footprint addressing climate change and/or restricting GHG emissions from fossil-fuel burning systems. The federal, state and local climate
change regulatory landscape is highly complex and rapidly and continuously evolving. At this time, we cannot predict whether, when, which, or in what
form climate change legislation provisions and GHG emission restrictions may be enacted and what the impact of any such legislation or standards may
have on our business, financial conditions or operations in the future. These measures could have a negative impact on our business over time or in the
future.
Our results of operations and financial condition may be adversely affected by environmental regulations, 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. 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,
19
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. For additional information about environmental and other regulations we are subject to, see Item 1 “Business-Governmental
Regulations.”
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. 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.
Risks Related to Information Technology and Cybersecurity
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 failure or breach of
these systems 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. As a result of our investigation of the incident, 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 were able to continue to serve our customers without interruption. We do not believe that this incident had 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.
Any future cyber-attacks or incidents may have a material adverse effect on our business, operations or financial results.
It is our view that 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. In addition, the information technology controls or legacy third party providers of an acquired business may be inadequate to prevent a future cyber-
attack, unauthorized access or other data security breaches. 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
20
damage caused by cyber-attacks, security breaches or other such disruptions in the future. We have paid and may continue to 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. For more information on
management's risk management, strategy, governance and impacts from cybersecurity incidents, see “Item 1C. Cybersecurity.”
Risks Related to Our Workforce
Our inability to identify, hire and retain 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. We have experienced and may continue to experience shortages of qualified individuals to fill available positions. 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, could compromise the quality of our service, and could have a
material adverse effect on our business, financial condition and results of operations.
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, 2024, approximately 39% of our employees were covered under 62 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.
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 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.
21
Risks Related to Ownership of Our Common Units
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:
•
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, and our capital structure, 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 decides whether to retain its counsel or engage separate counsel to perform services for us.
•
Unitholders are deemed to have consented to some actions and conflicts of interest under the Partnership Agreement that might otherwise be
deemed a breach of fiduciary or other duties under applicable state law.
•
Under the Partnership Agreement, 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 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.
Cash distributions (if any) are not guaranteed and may fluctuate with performance and reserve requirements.
Distributions of available cash, if any, 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 for distribution will depend upon numerous factors, many of which are out of our control.
Our credit agreement imposes restrictions on our ability to pay distributions to unitholders, including the need to maintain certain covenants. (See
the credit agreement at 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.
22
Our unitholder rights plan may discourage potential acquirers of the Company.
In March 2023, we adopted a unitholder rights plan, which provides, among other things, that when specified events occur, our unitholders will be
entitled to purchase additional common units. The unitholders rights plan will expire on March 24, 2028, unless further extended. The common unit
purchase rights are triggered ten days after the date of a public announcement that a person or group acting in concert has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of our outstanding common units. The common unit purchase rights would cause significant dilution to a
person or group that attempts to acquire the Company on terms that are not approved by the board of directors of the general partner. These provisions,
either alone or in combination with each other, give our general partner a substantial ability to influence the outcome of a proposed acquisition of the
Company. These provisions would apply even if an acquisition or other significant corporate transaction was considered beneficial by some of our
unitholders.
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, 2024, we had outstanding under our seventh amended and restated revolving credit facility agreement a $210.0 million term loan,
less than $0.1 million under the revolver portion of the agreement, $5.2 million of letters of credit, $14.2 million hedge positions were secured under the
credit agreement and our availability was $166.5 million. (See the credit agreement at Note 13 of the Notes to the Consolidated Financial Statements—
Long-Term Debt and Bank Facility Borrowings). Our debt is often substantially higher during the heating season as we access our revolving credit facilities
to finance accounts receivable and inventory balances. For example, our borrowings under the revolver peaked at $79.6 million during the fiscal 2024
heating season. Our substantial indebtedness and other financial obligations could:
•
impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, unit repurchases, paying
distributions 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;
•
expose us to interest rate risk because a significant portion of our borrowings are at variable rates of interest;
•
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
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, which is expected to be
$110.3 million. 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, 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
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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, incur indebtedness,
make distributions to our unitholders, purchase or redeem our outstanding equity interests, sell 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 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 our 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 credit agreement and cause the amounts borrowed to become immediately due and payable. 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. 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.
General Risk Factors
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, general liability and medical claims up to pre-established limits, we establish reserves based
upon expectations as to what our ultimate liability will be for claims based on our historical factors. Periodically, we evaluate on the potential for changes in
loss estimates with the support of qualified actuaries.
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 reserves or that the insurance we maintain will be adequate to protect us from all material expenses related to potential
future claims.
Recessionary economic conditions and rapid inflation could adversely affect our results of operations and financial condition.
Our business and results of operations may be adversely affected by changes in national or global economic conditions, including inflation, interest
rates, availability of capital markets, consumer spending rates, unemployment rates, rising health care costs, energy availability and costs, the negative
impacts caused by global conflicts, pandemics and public health crises, and the effects of governmental initiatives to manage economic conditions.
Volatility in financial markets and deterioration of national and global economic conditions, including rapid increases in inflation, have impacted, and may
again impact, our business and operations in a variety of ways. 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
24
negative effect on the demand for our products and services and could lead to increased conservation, as we have seen certain of our customers seek lower
cost providers. In addition, recessionary economic conditions could negatively impact the spending and financial viability of our 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.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 1C.
CYBERSECURITY
Risk Management and Strategy
We have implemented a comprehensive information security program to assess, identify, and manage material risks from cybersecurity threats. This
program includes policies and procedures that guide the development, implementation, and maintenance of security measures and controls. We utilize
industry-standard metrics to evaluate the criticality of software, data assets, and operational technology. Our cybersecurity efforts align with the Center for
Internet Security (CIS) Controls and the National Institute of Standards and Technology (NIST) Cybersecurity Framework, with annual assessments to
ensure compliance.
Given our reliance on third-party software, service providers, and applications to support various business functions and security measures, we
regularly conduct security audits and vendor management reviews. These processes are intended to ensure that third-party systems and services comply
with our cybersecurity program.
Periodic cyber risk assessments of our operational technology network help us identify risks, which we address using risk-based analysis and
judgment. We also conduct internal and external testing of software, hardware, and defensive systems in our efforts to uncover potential vulnerabilities.
Third-party security firms are employed for certain controls and technology operations, including vulnerability scans and penetration testing. Our approach
to managing third-party cybersecurity threats includes pre-acquisition due diligence, contractual obligations, and ongoing performance monitoring.
We employ governance, risk, and compliance (GRC) tools to manage cybersecurity risks and maintain business continuity and disaster recovery
plans to prepare for potential disruptions. Our employees receive cybersecurity awareness training upon hiring, with additional training provided on a
regular basis.
Governance
The Vice President of Information Technology (IT) and the Director of IT Security are responsible for overseeing our cybersecurity risk
management program. This includes managing internal cybersecurity staff, consulting with external cybersecurity experts, and staying informed through
governmental and private sources. They report regularly to executive management on cybersecurity threats, resources, and program updates.
Cybersecurity risk management is integrated into our overall risk management processes. The program monitors the prevention, detection,
mitigation, and remediation of cybersecurity risks and incidents. The Vice President of IT presents updates on IT projects, including cybersecurity policies
and programs, to executive management at least quarterly.
The Board of Directors has overall oversight of key risks, with strategic oversight of cybersecurity risk management delegated to the Audit
Committee. Annually, the Audit Committee reviews the Company’s enterprise risk management, which includes cybersecurity. In fiscal year 2024, the
Audit Committee established an IT Audit Subcommittee to enhance focus on IT-related internal controls and cybersecurity. The Board and Audit
Committee have appointed one of its independent directors and members of the Audit Committee to sit on the IT Subcommittee. This subcommittee meets
quarterly with key company leaders to review cybersecurity risks and audit findings and reports regularly to the Audit Committee.
25
Impacts from Cybersecurity Threats
Although we have experienced cybersecurity incidents, we do not believe they have, or are likely to have, a material impact on the business.
However, we recognize that cybersecurity threats are constantly evolving, and future incidents remain a possibility. Despite our security measures and IT
controls, we cannot guarantee that future cybersecurity incidents will be prevented. A successful attack could have significant consequences for the
business. For more information on the risks associated with cybersecurity threats, see “Item 1A, Risk Factors.”
ITEM 2. PROPERTIES
We currently provide services to our customers in the United States in twelve states and the District of Columbia, ranging from Massachusetts to
Maryland from 41 principal operating locations and 82 depots, 53 of which are owned and 70 of which are leased. As of September 30, 2024, we had a fleet
of approximately 1,134 truck and transport vehicles, the majority of which were owned, 1,195 service and 384 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.
26
PART II
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
the periods indicated.
SGU – Common Unit Price Range
Distributions Declared
High
Low
per Unit
Fiscal
Fiscal
Fiscal
Fiscal
Fiscal
Fiscal
Year
Year
Year
Year
Year
Year
Quarter Ended
2024
2023
2024
2023
2024
2023
December 31,
$
14.76 $
12.20 $
11.06 $
8.10 $
0.1625 $
0.1525
March 31,
$
12.34 $
13.33 $
9.91 $
10.98 $
0.1625 $
0.1525
June 30,
$
11.85 $
15.22 $
9.64 $
12.34 $
0.1725 $
0.1625
September 30,
$
12.64 $
14.00 $
10.11 $
11.31 $
0.1725 $
0.1625
As of November 30, 2024, there were approximately 185 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) not less than the greater of 15% of the Line Cap (lesser of the revolving credit facility borrowings and the
borrowing base) and $40 million, on a historical pro forma and forward-looking basis, and a fixed charge coverage ratio of not less than 1.15 after giving
pro forma effect to such distributions as if such distributions were paid on the first day of the relevant period. (See Note 13 of the Notes to the Consolidated
Financial Statements —Long-Term Debt and Bank Facility Borrowings).
On October 17, 2024, we declared a quarterly distribution of $0.1725 per unit, or $0.69 per unit on an annualized basis, on all Common Units with
respect to the fourth quarter of fiscal 2024, paid on November 6, 2024, to holders of record on October 28, 2024. 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, $6.0 million was paid to the Common Unit holders, $0.4 million to the general partner unit holders (including $0.3 million
of incentive distribution as provided in our Partnership Agreement) and $0.3 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.
27
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, 2024 is incorporated into this Item 5 by reference.
ITEM 6. (RESERVED)
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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 the impact of geopolitical events on wholesale product cost volatility, the price and supply of
the products that we sell, our ability to purchase sufficient quantities of product to meet our customer’s needs, rapid increases in levels of inflation, the
consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, the effect of weather conditions on our financial performance,
our ability to obtain new customers and retain existing customers, our ability to make strategic acquisitions, the impact of litigation, natural gas conversions
and electrification of heating systems, pandemic and future global health pandemics, recessionary economic conditions, 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, global supply chain issues, labor shortages and new technology, including alternative methods for heating and cooling residences. 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. Actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but
are not limited to, those set forth in this Report under the headings “Risk Factors,” “Business Strategy” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operation.” Important factors that could cause actual results to differ materially from our expectations (“Cautionary
Statements”) are disclosed in this Report. 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.
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 sensitive to heating cost increases, and this often leads to customer conservation and
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 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, 2020, through 2024, on a quarterly basis, is illustrated in the following chart (price per gallon):
Fiscal 2024 (a)
Fiscal 2023
Fiscal 2022
Fiscal 2021
Fiscal 2020
Quarter Ended
Low
High
Low
High
Low
High
Low
High
Low
High
December 31
$
2.51 $
3.22 $
2.78 $
4.55 $
2.06 $
2.59 $
1.08 $
1.51 $
1.86 $
2.05
March 31
2.53
2.96
2.61
3.55
2.36
4.44
1.46
1.97
0.95
2.06
June 30
2.29
2.77
2.23
2.73
3.27
5.14
1.77
2.16
0.61
1.22
September 30
2.06
2.63
2.38
3.48
3.13
4.01
1.91
2.34
1.08
1.28
a)
On November 30, 2024, the NYMEX ultra low sulfur diesel contract closed at $2.19 per gallon.
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
29
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 bonus depreciation available for fixed assets purchased. However, this table does not include
any forecast of future annual capital purchases.
Estimated Depreciation and Amortization Expense
(in thousands) Fiscal Year
Book
Tax
2024
$
32,461 $
32,544
2025
29,591
27,645
2026
24,141
25,236
2027
22,029
23,307
2028
18,808
22,309
2029
16,681
19,393
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.
The Company entered into weather hedge contracts for fiscal years 2023 and 2024. The hedge period runs from November 1 through March 31,
taken as a whole. The “Payment Thresholds,” or strikes, are set at various levels and are referenced against degree days for the prior ten year average.
Under these contracts the maximum amount the Company can receive is $12.5 million annually. For the contracts applicable to fiscal 2023, we were
additionally obligated to make an annual payment capped at $5.0 million if degree days exceeded the Payment Threshold. This obligation does not exist
under the contract applicable to fiscal year 2024.
The temperatures experienced during the hedge period through March 31, 2024 and March 31, 2023 were warmer than the strikes in the weather
hedge contracts. As a result for fiscal 2024 and 2023, the Company reduced delivery and branch expenses for the gains realized under those contracts of
$7.5 million and $12.5 million, respectively. The amounts were received in full in April 2024 and April 2023, respectively.
For fiscal 2025, the Company entered into weather hedge contracts with the similar hedge period described above. The maximum that the Company
can receive is $15.0 million annually and we are additionally obligated to make an annual payment capped at $5.0 million if degree days exceed the
Payment Threshold. If we had this same amount of coverage in place during fiscal 2024 we would have received $7.5 million more in April 2024.
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.
30
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. We follow hedge accounting for our interest rate swaps, but we have opted out of, and do not follow hedge accounting
for our commodity derivative instruments as hedging instruments. Regarding our interest rate hedges, 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. As mentioned, 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 commodity 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 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 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 impact of certain geopolitical forces on liquid product prices could increase future attrition due to higher losses from credit related issues.
Customer gains and losses of home heating oil and propane customers
Fiscal Year Ended
2024
2023
2022
Net
Net
Net
Gross Customer
Gains /
Gross Customer
Gains /
Gross Customer
Gains /
Gains
Losses
(Attrition)
Gains
Losses
(Attrition)
Gains
Losses
(Attrition)
First Quarter
17,100
17,800
(700 )
26,500
19,500
7,000
19,800
18,500
1,300
Second Quarter
9,300
14,400
(5,100 )
9,300
18,100
(8,800 )
12,700
17,300
(4,600 )
Third Quarter
4,700
11,000
(6,300 )
5,300
12,600
(7,300 )
6,400
14,300
(7,900 )
Fourth Quarter
7,900
12,400
(4,500 )
8,900
14,600
(5,700 )
11,400
15,800
(4,400 )
Total
39,000
55,600
(16,600 )
50,000
64,800
(14,800 )
50,300
65,900
(15,600 )
Customer gains (attrition) as a percentage of home heating oil and propane customer base
Fiscal Year Ended
2024
2023
2022
Gross Customer
Net
Gross Customer
Net
Gross Customer
Net
Gains
Losses
Gains /
(Attrition)
Gains
Losses
Gains /
(Attrition)
Gains
Losses
Gains /
(Attrition)
First Quarter
4.3%
4.5%
(0.2)%
6.4%
4.7%
1.7%
4.7%
4.4%
0.3%
Second Quarter
2.3%
3.6%
(1.3)%
2.2%
4.3%
(2.1)%
3.0%
4.1%
(1.1)%
Third Quarter
1.2%
2.8%
(1.6)%
1.3%
3.1%
(1.8)%
1.5%
3.4%
(1.9)%
Fourth Quarter
2.0%
3.1%
(1.1)%
2.1%
3.5%
(1.4)%
2.7%
3.7%
(1.0)%
Total
9.8%
14.0%
(4.2)%
12.0%
15.6%
(3.6)%
11.9%
15.6%
(3.7)%
31
For fiscal 2024, the Company lost 16,600 accounts (net), or 4.2%, of its home heating oil and propane customer base, compared to 14,800 accounts
lost (net), or 3.6%, of its home heating oil and propane customer base, during fiscal 2023. Gross customer gains were 11,000 accounts lower than the prior
year’s comparable period primarily due to market conditions with regard to physical supply in the first quarter of fiscal 2023 that did not repeat in the
current fiscal year and less customer move-ins. Gross customer losses were 9,200 accounts lower primarily due to reduction in the number of customer
relocations and other factors.
For fiscal 2023, the Company lost 14,800 accounts (net), or 3.6%, of its home heating oil and propane customer base, compared to 15,600 accounts
lost (net), or 3.7%, of its home heating oil and propane customer base, during fiscal 2022. Gross customer gains were 300 accounts lower than the prior
year’s comparable period, and gross customer losses were 1,100 accounts lower primarily due to reduction in the number of customer relocations.
During fiscal 2024, we estimate that we lost (1.4%) of our home heating oil and propane accounts to natural gas and electricity conversions versus
(1.6%) for fiscal 2023 and (1.5%) for fiscal 2022. Losses to natural gas and electricity 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. Subsequent to September 30,
2024 the Company acquired a heating oil business for approximately $0.7 million. During fiscal 2024, the Company acquired one propane and four heating
oil businesses for approximately $49.4 million. During fiscal 2023, the Company acquired two heating oil businesses and one propane business for
approximately $19.8 million. The following tables detail the Company’s acquisition activity and the associated volume sold during the 12-month period
prior to the date of acquisition.
(in thousands of gallons)
Fiscal 2025 Acquisitions
Acquisition Number
Month of Acquisition
Home Heating Oil and Propane
Motor Fuel and Other Petroleum
Products
Total
1
October
709
1,126
1,835
709
1,126
1,835
(in thousands of gallons)
Fiscal 2024 Acquisitions
Acquisition Number
Month of Acquisition
Home Heating Oil and Propane
Motor Fuel and Other Petroleum
Products
Total
1
November
1,210
222
1,432
2
November
885
369
1,254
3
February
1,473
1,097
2,570
4
February
1,936
—
1,936
5
September
17,752
—
17,752
23,256
1,688
24,944
(in thousands of gallons)
Fiscal 2023 Acquisitions
Acquisition Number
Month of Acquisition
Home Heating Oil and Propane
Motor Fuel and Other Petroleum
Products
Total
1
October
556
403
959
2
November
494
—
494
3
August
1,447
—
1,447
2,497
403
2,900
32
Sale of Certain Assets
In October 2022 we sold certain assets, which included a customer list of approximately 6,500 customers, for $2.7 million (including a deferred
purchase price of $0.5 million). The following table details sales generated from the assets sold:
(in thousands)
Year Ended September
30, 2022
Volume:
Home heating oil and propane
2,147
Motor fuel and other petroleum products
27
Sales:
Petroleum products
$
9,355
Installations and services
1,323
Total Sales
$
10,678
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.
33
Fiscal Year Ended September 30, 2024
Compared to Fiscal Year Ended September 30, 2023
Volume
For fiscal 2024, the retail volume of home heating oil and propane sold decreased by 5.8 million gallons, or 2.2%, to 253.4 million gallons,
compared to 259.2 million gallons for fiscal 2023. 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 2024 were less than 0.1% warmer than
fiscal 2023 and 15.1% warmer than normal, as reported by NOAA. For fiscal 2024, net customer attrition for the base business was 4.2%. 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:
Heating Oil
(in millions of gallons)
and Propane
Volume - Fiscal 2023
259.2
Net customer attrition
(12.1)
Impact of warmer temperatures
—
Acquisitions
5.3
Sale of certain assets
(0.1)
Other
1.1
Change
(5.8)
Volume - Fiscal 2024
253.4
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 2024 compared to fiscal 2023:
Twelve Months Ended
Customers
September 30,
2024
September 30,
2023
Residential Variable
41.9%
42.1%
Residential Price-Protected (Ceiling and Fixed Price)
44.2%
44.9%
Commercial/Industrial/Other
13.9%
13.0%
Total
100.0%
100.0%
Volume of motor fuel and other petroleum products sold decreased by 9.9 million gallons, or 7.1%, to 129.1 million gallons for fiscal 2024,
compared to 139.0 million gallons for fiscal 2023.
Product Sales
For fiscal 2024, product sales decreased $201.9 million, or 12.2%, to $1,448.8 million, compared to $1,650.7 million in fiscal 2023, due to a
decrease in average selling prices and a decrease in total volume sold of 3.9%. Selling prices decreased largely due to a decrease in wholesale product cost
of $0.4602 per gallon, or 15.2%. Product volumes and wholesale product cost include heating oil, propane, motor fuels and other petroleum products.
Installations and Services Sales
For fiscal 2024, installation and service sales increased $15.2 million, or 5.0%, to $317.3 million, compared to $302.1 million for fiscal 2023.
Installation sales increased by $8.8 million, or 7.6%, and service sales increased by $6.4 million, or 3.4%. The increase was partially driven by $5.2 million
of sales generated from recent acquisitions, and the remainder was driven by a concerted effort to expand these offerings to our customers as well as annual
price increases.
34
Cost of Product
For fiscal 2024, cost of product decreased $223.4 million, or 18.5%, to $980.8 million, compared to $1,204.2 million for fiscal 2023, due to a
decrease in wholesale product cost of $0.4602 per gallon, or 15.2% and a decrease in total volume sold of 3.9%. Product volumes and wholesale product
cost include heating oil, propane, motor fuels and other petroleum products.
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 2024 increased by $0.1304 per
gallon, or 8.4%, to $1.6800 per gallon, from $1.5496 per gallon during fiscal 2023. We cannot assume that the per gallon margins realized during fiscal
2024 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.
Twelve Months Ended
September 30, 2024
September 30, 2023
Home Heating Oil and Propane
Amount
(in millions)
Per
Gallon
Amount
(in millions)
Per
Gallon
Volume
253.4
259.2
Sales
$
1,082.0 $
4.2695 $
1,202.2 $
4.6384
Cost
$
656.2 $
2.5895 $
800.6 $
3.0888
Gross Profit
$
425.8 $
1.6800 $
401.6 $
1.5496
Motor Fuel and Other Petroleum Products
Amount
(in millions)
Per
Gallon
Amount
(in millions)
Per
Gallon
Volume
129.1
139.0
Sales
$
366.8 $
2.8406 $
448.5 $
3.2266
Cost
$
324.6 $
2.5136 $
403.6 $
2.9034
Gross Profit
$
42.2 $
0.3270 $
44.9 $
0.3232
Total Product
Amount
(in millions)
Amount
(in millions)
Sales
$
1,448.8
$
1,650.7
Cost
$
980.8
$
1,204.2
Gross Profit
$
468.0
$
446.5
For fiscal 2024, total product gross profit was $468.0 million, which was $21.5 million, or 4.8%, higher than fiscal 2023, due to an increase in home
heating oil and propane margins ($33.2 million) that was partially offset by a decrease in home heating oil and propane volume sold ($9.0 million) and
decrease in gross profit from other petroleum products ($2.7 million).
Cost of Installations and Services
Total installation costs for fiscal 2024 increased by $5.7 million or 6.0%, to $100.9 million, compared to $95.2 million of installation costs for fiscal
2023, primarily due to higher installation revenues of $8.8 million. Installation costs as a percentage of installation sales were 81.7% for fiscal 2024 and
83.0% for fiscal 2023. Gross profit from installations increased by $3.0 million due to an increase in sales dollars and an improvement in the gross profit
margin realized on installation sales.
Service expense decreased by $0.2 million, or 0.1%, to $182.5 million for fiscal 2024, representing 94.2% of service sales, versus $182.7 million, or
97.5% of service sales, for fiscal 2023. While service revenues increased by $6.4 million, service costs decreased by $0.3 million which led to an increase
in gross profit from service of $6.7
35
million. In fiscal 2024, the company undertook certain steps to improve service performance which favorably impacted service costs when compared to
fiscal 2023. In addition, a large proportion of our service expenses are incurred under fixed-fee prepaid service contract arrangements, therefore trends in
service expenses may not directly correlate to trends in the related revenues especially given the warmer than normal weather conditions in fiscal 2024 and
fiscal 2023. In both fiscal 2024 and 2023, the demand for service was less than expected due to the warmer than normal weather conditions.
We realized a combined gross profit from services and installations of $33.9 million for fiscal 2024 compared to a combined gross profit of $24.2
million for fiscal 2023, a $9.7 million increase in profitability.
(Increase) Decrease in the Fair Value of Derivative Instruments
During fiscal 2024, the change in the fair value of derivative instruments resulted in a $19.0 million charge due to a decrease in the market value for
unexpired hedges (a $14.6 million charge) and a $4.4 million charge due to the expiration of certain hedged positions.
During fiscal 2023, the change in the fair value of derivative instruments resulted in a $2.0 million charge as an increase in the market value for
unexpired hedges (a $3.9 million credit) was more than offset by a $5.9 million charge due to the expiration of certain hedged positions.
Delivery and Branch Expenses
For fiscal 2024, delivery and branch expenses increased $12.8 million to $366.4 million, compared to $353.6 million for fiscal 2023. During fiscal
2024, the company recorded a benefit under the weather hedge of $7.5 million compared to a benefit of $12.5 million during fiscal 2023 that accounts for a
$5.0 million increase in expense. The increase was also driven by $6.4 million of expenses from recent acquisitions and a $1.4 million, or 0.4% increases
in base business expenses. In the base business, a $6.0 million increase in insurance claim costs and premiums and $0.9 million of other net expense
increases was partially offset by a $5.5 million, or 5.1% decrease in delivery expenses driven by the 4.2% decline in home heating oil and propane volume
sold in the base business.
Depreciation and Amortization Expenses
For fiscal 2024, depreciation and amortization expense decreased $0.9 million, or 2.6%, to $31.5 million, compared to $32.4 million for fiscal 2023,
primarily due to intangible assets that fully amortized in the prior fiscal year.
General and Administrative Expenses
For fiscal 2024, general and administrative expenses increased $2.6 million, or 10.2%, to $28.4 million, compared to $25.8 million for fiscal 2023,
due to a $0.9 million increase in profit sharing expense, a $0.9 million increase in salaries and benefits expenses and a $0.8 million reduction in the gain on
the sale of fixed assets. The Company accrues approximately 6.0% of Adjusted EBITDA as defined in its profit sharing plan for distribution to its
employees. This amount is payable when the Company achieves Adjusted EBITDA of at least 70% of the amount budgeted. The dollar amount of the profit
sharing pool adjusts accordingly based on Adjusted EBITDA levels achieved.
Finance Charge Income
For fiscal 2024, finance charge income decreased by $0.9 million, or 17.0%, to $4.6 million compared to $5.5 million for fiscal 2023, due to less late
customer payment charges on reduced aged receivables that was partially driven by the reduction in sales.
Interest Expense, Net
For fiscal 2024, net interest expense decreased by $3.9 million, or 25.6%, to $11.6 million compared to $15.5 million for fiscal 2023. The year-
over-year change was driven by a decrease in average borrowings of $52.8 million from $211.7 million for the fiscal 2023 to $158.9 million for fiscal 2024
that was partially offset by an increase in the weighted average interest rate from 6.5% for fiscal 2023 to 7.3% for fiscal 2024. To hedge against rising
interest
36
rates, the Company utilizes interest rate swaps. At September 30, 2024, approximately 25% of borrowings under Star's variable-rate long term debt were
not subject to interest rate increases as a result of interest rate swaps.
Amortization of Debt Issuance Costs
For fiscal 2024, amortization of debt issuance costs decreased to $1.0 million from $1.1 million for fiscal 2023.
Income Tax Expense
For fiscal 2024, the Company’s income tax expense decreased by $0.7 million to $13.3 million, from $14.0 million for fiscal 2023. The decrease
was driven by a decrease in the effective income tax rate from 30.4% for fiscal 2023 to 27.5% for fiscal 2024 due primarily to a reduction in state taxes and
a decrease in valuation allowance that was partially offset by a $2.6 million increase in income before income taxes.
Net Income
For fiscal 2024, net income increased $3.3 million, or 10.3%, to $35.2 million, primarily due to a $14.7 million increase in Adjusted EBITDA, a
$3.9 million decrease in interest expense, a $0.9 million decrease in depreciation and amortization expenses and a decrease in income tax expense of $0.7
million that was partially offset by a $17.0 million unfavorable change in the fair value of derivative instruments.
Adjusted EBITDA
For fiscal 2024, Adjusted EBITDA increased by $14.7 million, or 15.2%, to $111.6 million compared to fiscal 2023, as an increase in home heating
oil and propane per gallon margins, an increase in service and installation profitability and the additional Adjusted EBITDA from acquisitions more than
offset a reduction in home heating oil and propane volume sold in the base business and a decrease in the weather hedge benefit of $5.0 million year-over-
year.
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.
37
EBITDA and Adjusted EBITDA are calculated as follows:
Twelve Months Ended
September 30,
(in thousands)
2024
2023
Net income
$
35,223 $
31,945
Plus:
Income tax expense
13,331
13,984
Amortization of debt issuance cost
988
1,084
Interest expense, net
11,560
15,532
Depreciation and amortization
31,494
32,350
EBITDA (a)
92,596
94,895
(Increase) / decrease in the fair value of derivative instruments
19,018
1,977
Adjusted EBITDA (a)
111,614
96,872
Add / (subtract)
Income tax expense
(13,331 )
(13,984 )
Interest expense, net
(11,560 )
(15,532 )
Provision for losses on accounts receivable
8,042
9,761
Decrease in receivables
11,271
15,566
Decrease in inventories
18,475
26,994
(Decrease) increase in customer credit balances
(15,546 )
17,585
Change in deferred taxes
(3,989 )
(501 )
Change in other operating assets and liabilities
6,002
(13,103 )
Net cash provided by operating activities
$
110,978 $
123,658
Net cash used in investing activities
$
(61,185 ) $
(28,197 )
Net cash provided by (used in) financing activities
$
22,351 $
(64,890 )
(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;
38
•
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, 2023
Compared to Fiscal Year Ended September 30, 2022
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, 2023 for the fiscal 2023 to fiscal 2022 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 2024, cash provided by operating activities decreased $12.7 million to $111.0 million, compared to $123.7 million provided by
operating activities during fiscal 2023. The decrease was driven by a decrease in collection of trade receivables on a comparable basis (including accounts
receivable and customer credit balance accounts) of $37.4 million that was partially offset by a $14.2 million increase in cash flows from operations, $5.2
million less payroll taxes paid in the first fiscal quarter of 2024 versus the first fiscal quarter of 2023 as the result of deferring payment of certain payroll tax
withholdings in first quarter of fiscal 2021 to the first fiscal quarter of fiscal 2023, a $2.1 million decrease in cash required to purchase product inventory
and $3.2 million of other net changes in working capital.
During fiscal 2023, cash provided by operating activities increased $89.8 million to $123.7 million, compared to $33.9 million provided by
operating activities during fiscal 2022. The increase was driven by an increase in collection of trade receivables on a comparable basis (including accounts
receivable and customer credit balance accounts) of $70.8 million and a $48.1 million decrease in cash required to purchase liquid product inventory on-
hand at fiscal year end primarily driven by a reduction in cost of recent inventory purchases compared to the prior year. Further contributing to the increase
was a $14.0 million decrease in net cash paid for certain hedge positions and $2.5 million increase in collection of derivative settlement receivables on a
comparative basis. The increase was partially offset by a $25.9 million unfavorable change in accounts payable due to the pricing and timing of inventory
purchases, an $11.7 million decrease in cash flows from operations, $5.2 million more in payroll taxes paid in the first fiscal quarter of 2023 versus the first
fiscal quarter of 2022 as the result of deferring payment of certain payroll tax withholdings in first quarter of fiscal 2021 to the first fiscal quarter of fiscal
2023, and $2.8 million of other net changes in working capital.
39
Investing Activities
Our capital expenditures for fiscal 2024 totaled $10.7 million, as we invested in our fleet and other equipment ($6.1 million), refurbished certain
physical plants ($2.1 million), expanded our propane operations ($1.2 million) and invested in computer hardware and software ($1.3 million).
During fiscal 2024, $1.7 million of earnings were reinvested 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 2024, the Company acquired one propane and four heating oil businesses for approximately $49.4 million in cash. The gross purchase
price was allocated $40.4 million to intangible assets, $13.7 million to goodwill, $4.9 million to fixed assets, and reduced by $9.6 million in negative
working capital.
Our capital expenditures for fiscal 2023 totaled $9.0 million, as we invested in our fleet and other equipment ($5.5 million), refurbished certain
physical plants ($1.4 million), expanded our propane operations ($1.0 million) and invested in computer hardware and software ($1.1 million).
During fiscal 2023, we deposited $1.6 million, and invested another $0.9 million, into an irrevocable trust to secure certain liabilities for our captive
insurance company.
During fiscal 2023, the Company acquired one propane and two heating oil businesses for approximately $19.8 million in cash. The gross purchase
price was allocated $10.4 million to intangible assets, $8.0 million to goodwill, $2.3 million to fixed assets, and reduced by $0.9 million in negative
working capital.
Financing Activities
During fiscal 2024, we refinanced our five-year term loan and the revolving credit facility with the execution of the seventh amended and restated
revolving credit facility agreement. This amendment extended our bank facility to September 2029. The $210 million of proceeds from the new term loan
were used to repay the $132.1 million outstanding balance of the term loan under the prior credit facility. Prior to amending the bank facility, we also repaid
$16.4 million of our term loan, borrowed $79.6 million under our revolving credit facility and subsequently repaid $79.8 million. We also repurchased
approximately 1.0 million Common Units for $11.1 million in connection with our unit repurchase plan, and paid distributions of $23.6 million to our
Common Unit holders and $1.4 million to our General Partner unit holders (including $1.3 million of incentive distributions as provided in our Partnership
Agreement).
During fiscal 2023, we repaid $16.5 million of our term loan, borrowed $125.6 million under our revolving credit facility and subsequently repaid
$145.6 million. We also repurchased 0.5 million Common Units for $4.5 million in connection with our unit repurchase plan, and paid distributions of
$22.5 million to our Common Unit holders and $1.2 million to our General Partner unit holders (including $1.16 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,
geopolitical and business conditions, 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, inflation and other factors.
Funding for capital requirements, at least in the near term, are expected to be funded by cash flows from operating activities, cash on hand as of
September 30, 2024 ($117.3 million) or a combination thereof. We believe that these cash sources will also be sufficient to satisfy our capital requirements
in the longer-term. However, if they are not sufficient, 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, 2024,
40
we had accounts receivable of $95.0 million of which $63.5 million is due from residential customers and $31.5 million is due from commercial customers.
Our ability to borrow from our bank group is based in part on the aging of these accounts receivable. If these balances do not meet the eligibility tests as
defined in our 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, 2024, we had less than $0.1 million borrowings under our revolving credit facility, $210.0 million outstanding under our term loan, $5.2
million in letters of credit outstanding and $14.2 million hedge positions were secured under the credit agreement.
Under the terms of the credit agreement, if we permit Availability (as defined in the credit agreement) to be less than the greater of (a) 12.5% of the
Line Cap (lesser of the revolving credit facility borrowings and the borrowing base) and (b) $35.0 million, we must maintain a fixed charge coverage ratio
of 1.10. We are also required to maintain a senior secured leverage ratio that cannot be more than 3.0 as of June 30th or September 30th, and no more than
5.5 as of December 31st or March 31st. As of September 30 2024 Availability as defined in the seventh amended and restated revolving credit facility
agreement was $166.5 million and we were in compliance with the financial covenants.
Maintenance capital expenditures for fiscal 2025 are estimated to be approximately $12.8 million, excluding the capital requirements for leased fleet
which we currently estimate to be $13.3 million. In addition, we plan to invest approximately $1.7 million in our propane operations. Distributions for
fiscal 2025, at the current quarterly level of $0.1725 per unit, would result in aggregate payments of approximately $23.9 million to Common Unit holders,
$1.5 million to our General Partner (including $1.4 million of incentive distribution as provided for in our Partnership Agreement) and $1.4 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 seventh amended and restated revolving credit facility
agreement, our term loan is repayable in quarterly payments of $5.3 million. We are not required to make an additional term loan repayments due to Excess
Cash Flow in fiscal 2024 (see Note 13 - Long-Term Debt and Bank Facility Borrowings). Further, subject to any additional liquidity issues or concerns
resulting from wholesale price volatility, 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 obligations arising out of a material variable interest held by us in an unconsolidated entity and, we have no 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, 2024.
The table below summarizes the payment schedule of our contractual obligations at September 30, 2024 (in thousands):
Payments Due by Fiscal Year
Total
2025
2026
and 2027
2028
and 2029
Thereafter
Debt obligations (a)
$
210,005 $
21,005 $
42,000 $
147,000 $
—
Operating lease obligations (b)
113,399
25,240
43,459
26,894
17,806
Purchase obligations and other (c)
57,274
12,418
10,594
6,074
28,188
Interest obligations (d)
48,470
13,074
26,294
9,102
—
$
429,148 $
71,737 $
122,347 $
189,070 $
45,994
(a)
Reflects payments due of debt existing as of September 30, 2024, considering the terms of our credit agreement. (See Note 13 - Long-Term Debt and
Bank Facility Borrowings)
(b)
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)
41
(c)
Represents non-cancelable commitments as of September 30, 2024 for operations such as customer related invoice and statement processing, voice
and data phone/computer services, real estate taxes on leased property and our undiscounted future payment obligations to the New England
Teamsters and Trucking Industry Pension Fund.
(d)
Reflects interest obligations on our term loan due September 2029 and the unused commitment fee on the revolving credit facility.
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
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, 2024, we had approximately $76.7 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.
42
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risk primarily through our credit agreement. We utilize these borrowings to meet our working capital needs.
At September 30, 2024, we had outstanding borrowings totaling $210.0 million, of which $158.0 million are subject to variable interest rates under
our credit agreement. In the event that interest rates associated with this facility were to increase 100 basis points, the after tax impact on annual future cash
flows would be a decrease of $1.1 million.
We regularly use derivative financial instruments to manage our exposure to market risk related to changes in the current and future market price of
home heating oil. 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, 2024, the potential impact on our hedging activity would be to increase the fair market value of these outstanding derivatives by $7.1 million
from $(14.1) million to a fair market value of $(7.0) million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the
fair market value of these outstanding derivatives by $5.0 million to a fair market value of $(19.1) 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, 2024. 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, 2024 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, 2024.
The effectiveness of our internal control over financial reporting as of September 30, 2024 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.
43
(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, or will be met, and that regardless of our evaluation of controls we cannot provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been detected. Therefore, our controls system, no matter how well we believe it may
be conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the Company's controls system are met, or will be
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, 2024, that our disclosure controls and procedures
were effective in achieving that level of reasonable assurance.
ITEM 9B.
OTHER INFORMATION
(a) N/A
(b) Trading Plans. During the quarter ended September 30, 2024, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading
arrangements or non-Rule 10b5-1 trading arrangements.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
44
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Partnership Management
Our general partner is Kestrel Heat. The Board of Directors of Kestrel Heat is appointed by its sole member, Kestrel, which is a private investment
partnership owned by Yorktown Energy Partners XII, 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.
As of November 30, 2024, 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, 2024:
Name
Age
Position
Paul A. Vermylen, Jr.
77
Chairman, Director
Jeffrey M. Woosnam
56
President, Chief Executive Officer and Director
Richard F. Ambury
67
Chief Financial Officer, Executive Vice President, Treasurer and Secretary
Jeffrey S. Hammond
62
Chief Operating Officer
Joseph R. McDonald
55
Chief Customer Officer
Henry D. Babcock(1)
84
Director
C. Scott Baxter(1)
63
Director
David M. Bauer(1)
55
Director
Daniel P. Donovan
78
Director
Bryan H. Lawrence
82
Director
William P. Nicoletti (1)
79
Director
(1)
Audit Committee member
45
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 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.
46
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. Mr. Babcock worked with Train, Babcock
Advisors LLC, a private registered investment advisor, from 1976, becoming a Member in 1980 until 2010 when he retired but continued to serve as a
Consultant until 2021. Prior to 1976, he ran an affiliated venture capital company active in the U.S. and abroad. Mr. Babcock received a BA from Yale
University and an M.B.A. 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 and Independent
Contractor with Berkeley Research Group (“BRG”), a global investment banking advisory and consulting firm, and he is the Managing Partner of Green
River Energy Partners, a boutique investment banking and restructuring advisory firm. Mr. Baxter has over 30 years of energy investment banking
experience and has been a primary advisor in sourcing and executing over $300 billion in corporate M&A, restructuring and equity financing transactions
in the energy and power industries. Mr. Baxter also has significant experience advising independent committees of boards including rendering over 40
independent fairness opinions spanning the upstream, downstream, midstream, oil field services, power and renewables industry sectors including for many
MLPs. Mr. Baxter also worked for Peat Marwick Main & Co, and Price Waterhouse, both global accounting firms, and in the regional accounting office of
Sears Roebuck & Co.
Mr. Baxter’s previous energy investment banking experience includes 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), serving as head of the energy group for Houlihan Lokey, along with
additional positions at other investment banking firms.
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 M.B.A. 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.
Mr. Bauer’s current and prior experience as Chief Investment Officer of Lubar & Co. and his significant experience in private equity, venture capital,
finance and accounting, among other factors, led the Board to conclude that he should serve as a director of Kestrel Heat.
47
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.
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 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. From February 1, 2009, until he retired on February 15, 2023, he was a Managing
Director of Parkman Whaling LLC, a Houston, Texas based energy investment banking firm. Mr. Nicoletti was formerly a senior officer and head of
Energy Investment Banking for investment banks in New York City. 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.
Meetings of Directors
During fiscal 2024, the Board of Directors of Kestrel Heat met five times. All directors attended each meeting, except Mr. Nicoletti did not attend
the Board meeting held on July 18, 2024.
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 until their
respective successors are elected. The NYSE corporate governance standards do not require limited partnerships to have a Nominating or Compensation
Committee.
48
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. 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 2024, the Audit Committee of Kestrel Heat, LLC met six times. All committee members 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 2024.
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.
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 2024, 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.
49
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 of 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 2024, each person who served as chief financial
officer (“CFO”) during fiscal 2024 and the two other most highly compensated executive officers serving at September 30, 2024 (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.
50
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 certain 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, Crestwood Equity Partners L.P., Ferrellgas Partners, L.P., Global Partners, L.P., New Jersey Resources Corporation, NuStar Energy
L.P., Suburban Propane Partners, L.P. and Sunoco 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, 2024, the principal components of compensation for the named executive officers were:
•
base salary;
•
annual discretionary profit sharing allocation;
•
the 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 2024, an aggregate of $558,867 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.
51
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 2024 unless we achieved actual adjusted EBITDA for fiscal 2024 of at least
70% of the amount of budgeted adjusted EBITDA for fiscal 2024;
•
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.
52
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. The Company is entitled to recover or “clawback” profit sharing allocations paid to our named
executive officers in the event of any accounting restatement arising from a material non-compliance with the financial reporting requirements under the
Securities Act of 1934, as amended, in accordance with the Company’s Incentive Compensation Recovery Policy dated as of October 19, 2023 (the
“Clawback Policy”). At no time during or after the Company’s fiscal year ended September 30, 2024 was the Company required to prepare any accounting
restatement that would have entitled the Company to recovery of profit sharing allocations under the Company’s Clawback Policy. The Company’s
Clawback Policy is filed as an Exhibit to this Report.
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 at the time. 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. Under the Plan, certain current and former 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.
The pro rata share payable to the named executive officers under the Plan is based on the number of participation points as described under “Fiscal
2024 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;
53
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.
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.
We distributed $1,322,059 in Incentive Distributions under the Plan during fiscal 2024, including payments to former employees and their heirs of
approximately $679,063 and the named executive officers of approximately $558,867. 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, as of September 30, 2024, we have one frozen defined benefit pension plan that was maintained for all eligible employees, including
certain executive officers. The present value of accumulated benefits under this frozen defined benefit pension plan 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.”
54
Fiscal 2024 Compensation Decisions
For fiscal 2024, the foregoing elements of compensation were applied as follows:
Base Salary
The following table sets forth each named executive officer’s base salary as of October 1, 2024 and the percentage increase in base salary over
October 1, 2023. 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 6.5%.
Name
Salary
Percentage Change
From Prior Year
Jeffrey M. Woosnam
$
494,000
4.0%
Richard F. Ambury
$
490,955
4.0%
Jeffrey S. Hammond
$
369,065
4.0%
Joseph R. McDonald
$
369,065
4.0%
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 2024, the profit sharing amounts reflected in the Summary Compensation
Table are 15% higher than fiscal 2023 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 2024, Adjusted EBITDA (as
calculated under the Profit Sharing Plan) increased by $14.6 million, or 15.5%, to $109.2 million compared to fiscal 2023. For our peers that are on a fiscal
year similar to Star Group, the average percentage increase in Adjusted EBITDA was 8.6%, and the average total compensation increased by 17.1%.
Another performance measure is acquisitions. During fiscal 2024, the Company acquired four heating oil businesses and one propane business with
an aggregate purchase price of $49.4 million that are expected to generate approximately 23.3 million gallons of home heating oil and propane annually.
Messrs. Woosnam, Ambury, Hammond and McDonald were instrumental in the successful integration of these transactions.
In addition, the Company extended its banking facility which provided availability for recent and future acquisitions at the same pricing under the
previous facility.
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.
55
In fiscal 2024, $558,867 was paid to the named executive officers under the Plan as indicated in the following chart:
Name
Points
Percentage
Management
Incentive
Payments
Jeffrey M. Woosnam
60
5.5%
72,112
Richard F. Ambury
235
21.4%
282,438
Jeffrey S. Hammond
50
4.5%
60,093
Joseph R. McDonald
120
10.9%
144,224
Other Plan Participants (a)
635
57.7%
763,192
Total
1,100
100% $
1,322,059
(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.
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 $2,224,330 and Mr. Ambury would have received a payment of $1,962,735.
56
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 2024, our last completed fiscal
year, our CEO’s total compensation was $1,255,821 versus our median employee compensation of $75,577. This reflects a CEO pay ratio of 17:1. We
identified our median compensation employee by examining total compensation paid for fiscal year 2024 to all individuals, excluding Mr. Woosnam, who
were employed by us on September 30, 2024, 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 2024,
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.
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, 2024.
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
57
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.
Summary Compensation Table
Name and
Principal Position
Fiscal
Year
Salary
Bonus
Unit
Awards
Option
Awards
Non-
Equity
Incentive
Plan
Comp.(1)
Change in
Pension
Value and
Nonqualified
Deferred
Comp.
Earnings (2)
All Other
Comp.(3)
Total
Jeffrey M. Woosnam
2024
$
484,410
—
—
— $
648,945 $
— $
122,466 $ 1,255,821
President and Chief
2023
$
466,000
—
—
— $
564,300 $
— $
112,205 $ 1,142,505
Executive Officer
2022
$
448,500
—
—
— $
641,250 $
— $
103,353 $ 1,193,103
Richard F. Ambury
2024
$
481,505
—
—
— $
514,832 $
18,386 $
331,938 $ 1,346,661
Chief Financial Officer,
2023
$
464,073
—
—
— $
447,680 $
— $
360,539 $ 1,272,292
Treasurer and Executive
2022
$
450,530
—
—
— $
508,725 $
— $
271,226 $ 1,230,481
Vice President
Jeffrey S. Hammond
2024
$
361,965
—
—
— $
481,080 $
— $
110,445 $
953,490
Chief Operating
2023
$
348,040
—
—
— $
418,330 $
— $
101,107 $
867,477
Officer
2022
$
335,445
—
—
— $
475,380 $
— $
93,524 $
904,349
Joseph R. McDonald
2024
$
361,965
—
—
— $
481,080 $
— $
193,941 $ 1,036,986
Chief Customer
2023
$
348,040
—
—
— $
418,330 $
— $
175,665 $
942,035
Officer
2022
$
335,445
—
—
— $
475,380 $
— $
159,499 $
970,324
(1)
Payable pursuant to the Company’s profit sharing pool, which is described under “Compensation Discussion and Analysis – Profit Sharing
Allocation.”
(2)
We have one frozen defined benefit pension plan that we sometimes refer to in this Report as the Petro defined benefit pension plan, where
participants are not accruing additional benefits. Mr. Ambury also participated in a tax-qualified supplemental employee retirement plan (the
"SERP") which, prior to being frozen in 1997, represented contributions to an employee plan to compensate for a reduction in certain benefits prior
to 1997. In June 2023, Mr. Ambury received a $64,059 lump sum distribution under the SERP in connection with this withdrawal from the SERP.
Mr. Ambury is not entitled to receive any further benefits under the SERP. The change in all the named executive’s pension values are non-cash,
and reflect normal adjustments resulting from changes in discount rates and government mandated mortality tables.
(3)
All other compensation is subdivided as follows:
Name
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
Total
Jeffrey M. Woosnam
$
72,112 $
20,553 $
29,801 $
122,466
Richard F. Ambury
$
282,438 $
20,700 $
28,800 $
331,938
Jeffrey S. Hammond
$
60,093 $
20,471 $
29,881 $
110,445
Joseph R. McDonald
$
144,224 $
19,709 $
30,008 $
193,941
58
Grants of Plan-Based Awards
Estimated Future Payouts
Equity Incentive Plan Awards (1)
Estimated Future Payouts
Under Equity Incentive Plan
All Other
Stocks
Awards:
Number
of
Shares of
All Other
Option
Awards:
Number of
Securities
Exercise or
Base Price of
Option
Grant Date
Fair Value
of Stock
and
Name
Grant
Date (1)
Threshold
($)
Target
($) (2)
Maximum
($)
Threshold
(#)
Target
(#)
Maximu
m
(#)
Stock or
Units (#)
Underlying
Options (#)
Awards
($/Sh)
Option
Awards
Jeffrey M.
Woosnam
7/21/09
— $ 648,945
—
—
—
—
—
—
—
—
Richard F.
Ambury
7/21/09
— $ 514,832
—
—
—
—
—
—
—
—
Jeffrey S.
Hammond
7/21/09
— $ 481,080
—
—
—
—
—
—
—
—
Joseph R.
McDonald
7/21/09
— $ 481,080
—
—
—
—
—
—
—
—
(1)
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.”
(2)
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 2024.
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
Plan Name
Number of Years
Credited Service
Present Value of
Accumulated Benefit
Payments During Last
Fiscal Year
Richard F. Ambury (1)
Retirement Plan
13 $
259,412 $
—
(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 the frozen plan.
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
None.
59
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
Potential Payments
Upon Termination
Potential Payments
Following
a Change of Control
Jeffrey M. Woosnam
$
494,000 $
2,224,330
Richard F. Ambury
$
490,955 $
1,962,735
60
Compensation of Directors
Director Compensation Table - Fiscal Year 2024
Name
Fees
Earned
or Paid
in Cash
Unit
Awards
Option
Awards
Non-Equity
Incentive
Plan
Compensation
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings (2)
All Other
Compensation
(3)
Total
Paul A. Vermylen, Jr. (1)
$
129,500
—
—
— $
6,337 $
69,527 $
205,364
Daniel P. Donovan (4)
$
73,283
—
—
— $
25,050 $
423,670 $
522,003
Henry D. Babcock (5)
$
95,463
—
—
— $
— $
— $
95,463
David M. Bauer (5)
$
95,463
—
—
— $
— $
— $
95,463
C. Scott Baxter (5)
$
95,463
—
—
— $
— $
— $
95,463
Bryan H. Lawrence (6)
$
—
—
—
— $
— $
— $
—
William P. Nicoletti (7)
$
107,142
—
—
— $
— $
— $
107,142
(1)
Mr. Vermylen is non-executive Chairman of the Board.
(2)
Mr. Vermylen and Mr. Donovan participate in our frozen defined benefit pension plan. 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.
(3)
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.
(4)
The amount included for Mr. Donovan in all other compensation represents $360,559 for amounts paid to him under the management incentive
compensation plan, and $63,111 for pension payments.
(5)
Mr. Babcock, Mr. Bauer and Mr. Baxter are Audit Committee members.
(6)
Mr. Lawrence has chosen not to receive any fees as a director of the general partner of Star.
(7)
Mr. Nicoletti is Chairman of the Audit Committee.
Each non-management director receives an annual fee of $67,300 plus $1,500 for each regular and telephonic meeting attended. The Chairman of
the Audit Committee receives an annual fee of $27,000 while other Audit Committee members receive an annual fee of $13,500. 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
$124,800.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership as of November 30, 2024 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.
61
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.
Common Units
General Partner Units
Name
Number
Percentage
Number
Percentage
Kestrel (a)
—
*
325,729
100.00%
Paul A. Vermylen, Jr. (b)
1,345,960
3.89%
Henry D. Babcock (c)
104,121
*
William P. Nicoletti
35,506
*
Bryan H. Lawrence
1,263,863
3.66%
C. Scott Baxter
—
*
David M. Bauer (d)
1,254,662
3.63%
Daniel P. Donovan
25,000
*
Richard F. Ambury (e)
43,390
*
Jeffrey M. Woosnam
15,000
*
Joseph R. McDonald
6,500
*
Jeffrey S. Hammond
5,000
*
All officers and directors and Kestrel Heat, LLC as a group (12
persons)
4,099,002
11.85%
325,729
100.00%
Bandera Partners, LLC, et al. (f)
3,656,670
10.58%
Hartree Partners, LP (g)
3,123,253
9.03%
Stephen M. Lessing (h)
2,020,000
5.84%
(a)
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.
(b)
Includes 218,515 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 852,614 Common Units held by 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.
(c)
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.
(d)
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.
(e)
Common Units are owned by the Richard F. Ambury 2013 Revocable Living Trust, with respect to which Mr. Ambury is the trustee.
(f)
According to a Schedule 13G/A jointly filed by Bandera Partners, LLC, Gregory Bylinsky and Jefferson Gramm with the SEC on February 13,
2024. Includes 206,483 common units directly owned by Mr. Gramm and 4,827 common units directly owned by Mr. Bylinsky. Bandera Partners,
LLC is the investment manager of Bandera Master Fund L.P. which directly owns the remaining 3,445,360 common units reported on the Form 13F
dated November 12, 2024.
(g)
According to a Schedule 13F filed by Hartree Partners, LP with the SEC on November 13, 2024.
(h)
According to a Schedule 13G/A filed by Stephen M. Lessing with the SEC on June 25, 2024.
* Amount represents less than 1%.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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
62
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.
In connection with the Company’s acquisition of assets that currently form part of the Company’s Pennsylvania operations, the Company (through
one of its wholly-owned subsidiaries) entered into an agreement to lease certain real estate from the seller of such assets in August 1994. The seller of such
assets and the original lessor of the real estate was an entity in which Douglas Woosnam, the father of Jeffrey Woosnam, our president and chief executive
officer, held a direct, material interest. Since August 1994, the original lease agreement has been amended and extended multiple times. Further, the
original lessor assigned the lease to Douglas Woosnam. The last such amendment and extension occurred in June 2024. Pursuant to the terms of that
amendment, the lease was extended for an additional period commencing September 13, 2026 and ending September 12, 2036. The total rent for the ten-
year period commencing September 13, 2026 is $2,186,095.20, payable in 120 monthly payments escalating from $17,239.63 per month in the first year of
the extension to $20,673.58 per month in the last year of the extended lease period. The lease amendment also increases the financial responsibility of the
landlord should storage tanks on the property need a new repairs from 50 percent of the costs in the first year of the extension to full financial responsibility
by the last year of the extension. The lease and all amendments were negotiated at arms’ length and the rent payable on a per square foot basis is
comparable to the per square foot rental rates of similar commercial property in Southampton, Pennsylvania. The Company is responsible for taxes,
insurance, utilities and maintenance of the premises. For the fiscal year ended September 30, 2024, we paid $200,850 in the aggregate to the lessor under
the lease agreement.
Other than the lease agreement discussed above, for the years ended September 30, 2024, 2023, and 2022, Star had no related party transactions or
agreements pursuant to Item 404 of Regulation S-K.
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 Vice President -
Controller 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.
63
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) any customary or accepted industry practices and any customary or historical dealings with a particular person;
(C) any applicable generally accepted accounting practices or principles; and
(D) 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.
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.
64
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 2024 and 2023, and for fees billed and accrued for other services rendered by KPMG LLP (in thousands).
2024
2023
Audit Fees (1)
$
2,065 $
1,938
Tax Fees (2)
422
403
Total Fees
$
2,487 $
2,341
(1)
Audit fees were for professional services rendered in connection with audits and quarterly reviews of the consolidated financial statements of
the Company.
(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.
65
PART IV
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.
3.
Exhibits—See “Index to Exhibits” set forth on the following page.
ITEM 16.
FORM 10-K SUMMARY
None.
66
INDEX TO EXHIBITS
Exhibit
Number
Description
3.1
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.)
3.2
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.)
3.3
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.)
10.1
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.)
10.2
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.)
10.3
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.)
10.4
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.)
10.5
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.)
10.6
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.)
10.7
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.)
10.8
Seventh Amended and Restated Credit Agreement, dated as of September 27, 2024 (Incorporated by reference to an
exhibit to the Registrant’s Current Report on Form 8-K dated September 27, 2024.)
10.9
Seventh Amended and Restated Pledge and Security Agreement, dated as of September 27, 2024 (Incorporated by
reference to an exhibit to the Registrant’s Current Report on Form 8-K dated September 27, 2024.)
14
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.)
21*
Subsidiaries of the Registrant (Filed herewith.)
31.1*
Certification of Chief Executive Officer, Star Group, L.P., pursuant to Rule 13a-14(a)/15d-14(a)
31.2*
Certification of Chief Financial Officer, Star Group, L.P., pursuant to Rule 13a-14(a)/15d-14(a)
67
32.1*
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
32.2*
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
97*
Star Group L.P. Incentive Compensation Recovery Policy (Filed herewith.)
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Filed Herewith
† Employee compensation plan.
68
SIGNATURE
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 4th day of December, 2024:
STAR GROUP, L.P.
By:
KESTREL HEAT, LLC (General Partner)
By:
/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
Title
Date
/s/ Jeffrey M. Woosnam
President and Chief Executive Officer and Director Kestrel
Heat, LLC
December 4, 2024
Jeffrey M. Woosnam
/s/ Richard F. Ambury
Chief Financial Officer, Executive Vice President, Treasurer
and Secretary (Principal
December 4, 2024
Richard F. Ambury
Financial Officer) Kestrel Heat, LLC
/s/ Cory A. Czekanski
Vice President—Controller (Principal
Accounting Officer) Kestrel Heat, LLC
December 4, 2024
Cory A. Czekanski
/s/ Paul A. Vermylen, Jr.
Non-Executive Chairman of the Board and Director Kestrel
Heat, LLC
December 4, 2024
Paul A. Vermylen, Jr.
/s/ Henry D. Babcock
Director Kestrel Heat, LLC
December 4, 2024
Henry D. Babcock
/s/ C. Scott Baxter
Director Kestrel Heat, LLC
December 4, 2024
C. Scott Baxter
/s/ David M. Bauer
Director Kestrel Heat, LLC
December 4, 2024
David M. Bauer
/s/ Daniel P. Donovan
Director Kestrel Heat, LLC
December 4, 2024
Daniel P. Donovan
/s/ Bryan H. Lawrence
Director Kestrel Heat, LLC
December 4, 2024
Bryan H. Lawrence
/s/ William P. Nicoletti
Director Kestrel Heat, LLC
December 4, 2024
William P. Nicoletti
F-1
STAR GROUP, L.P. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page
Part II Financial Information:
Item 8—Financial Statements
Report of Independent Registered Public Accounting Firm (KPMG LLP, Stamford, CT, Auditor Firm ID: 185)
F-2 – F-3
Consolidated Balance Sheets as of September 30, 2024 and September 30, 2023
F-4
Consolidated Statements of Operations for the years ended September 30, 2024, September 30, 2023 and September 30, 2022
F-5
Consolidated Statements of Comprehensive Income for the years ended September 30, 2024, September 30, 2023 and September
30, 2022
F-6
Consolidated Statements of Partners’ Capital for the years ended September 30, 2024, September 30, 2023 and September 30,
2022
F-7
Consolidated Statements of Cash Flows for the years ended September 30, 2024, September 30, 2023 and September 30, 2022
F-8
Notes to Consolidated Financial Statements
F-9 – F-36
Schedules for the years ended September 30, 2024, September 30, 2023 and September 30, 2022
I. Condensed Financial Information of Registrant
F-37– F-39
II. Valuation and Qualifying Accounts
F-40
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.
F-2
Report of Independent Registered Public Accounting Firm
To the Unitholders of Star Group, L.P. and Board of Directors of Kestrel Heat, LLC
Star Group, L.P.:
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, 2024 and 2023, 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, 2024, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2024,
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, 2024 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 audit 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 audit 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 with generally accepted accounting principles, and
F-3
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 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. The balance of the self-insurance
liabilities, as of September 30, 2024 amounted to $76.7 million as shown in note 12 to the consolidated financial statements. We identified the evaluation of
the self-insurance liabilities for workers’ 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 4, 2024
F-4
STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
(in thousands)
2024
2023
ASSETS
Current assets
Cash and cash equivalents
$
117,335
$
45,191
Receivables, net of allowance of $6,434 and $8,375, respectively
94,981
114,079
Inventories
41,587
56,463
Fair asset value of derivative instruments
—
10,660
Prepaid expenses and other current assets
27,566
28,308
Total current assets
281,469
254,701
Property and equipment, net
104,534
105,404
Operating lease right-of-use assets
91,141
90,643
Goodwill
275,829
262,103
Intangibles, net
98,712
76,306
Restricted cash
250
250
Captive insurance collateral
74,851
70,717
Deferred charges and other assets, net
12,825
15,354
Total assets
$
939,611
$
875,478
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable
$
31,547
$
35,609
Revolving credit facility borrowings
5
240
Fair liability value of derivative instruments
13,971
118
Current maturities of long-term debt
21,000
20,500
Current portion of operating lease liabilities
19,832
18,085
Accrued expenses and other current liabilities
116,317
115,606
Unearned service contract revenue
66,424
63,215
Customer credit balances
104,700
111,508
Total current liabilities
373,796
364,881
Long-term debt
187,811
127,327
Long-term operating lease liabilities
75,916
77,600
Deferred tax liabilities, net
21,922
25,771
Other long-term liabilities
16,273
16,175
Partners’ capital
Common unitholders
282,058
281,862
General partner
(5,714)
(4,615)
Accumulated other comprehensive loss, net of taxes
(12,451)
(13,523)
Total partners’ capital
263,893
263,724
Total liabilities and partners’ capital
$
939,611
$
875,478
See accompanying notes to consolidated financial statements.
F-5
STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended September 30,
(in thousands, except per unit data)
2024
2023
2022
Sales:
Product
$
1,448,792
$
1,650,741
$
1,698,281
Installations and services
317,307
302,121
308,277
Total sales
1,766,099
1,952,862
2,006,558
Cost and expenses:
Cost of product
980,831
1,204,184
1,239,605
Cost of installations and services
283,444
277,927
282,723
(Increase) decrease in the fair value of derivative instruments
19,018
1,977
17,286
Delivery and branch expenses
366,381
353,614
353,517
Depreciation and amortization expenses
31,494
32,350
32,598
General and administrative expenses
28,405
25,780
24,882
Finance charge income
(4,576)
(5,515)
(4,506)
Operating income
61,102
62,545
60,453
Interest expense, net
(11,560)
(15,532)
(10,472)
Amortization of debt issuance costs
(988)
(1,084)
(955)
Income before income taxes
48,554
45,929
49,026
Income tax expense
13,331
13,984
13,738
Net income
$
35,223
$
31,945
$
35,288
General Partner’s interest in net income
311
288
281
Limited Partners’ interest in net income
$
34,912
$
31,657
$
35,007
Basic and diluted income per Limited Partner Unit (1):
$
0.90
$
0.81
$
0.85
Weighted average number of Limited Partner units outstanding:
Basic and Diluted
35,273
35,694
37,384
(1)
See Note 19 - Earnings Per Limited Partner Units.
See accompanying notes to consolidated financial statements.
F-6
STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended September 30,
(in thousands)
2024
2023
2022
Net income
$
35,223
$
31,945 $
35,288
Other comprehensive income (loss):
Unrealized gain (loss) on pension plan obligation
1,291
1,463
(436)
Tax effect of unrealized gain (loss) on pension plan obligation
(262)
(405)
129
Unrealized gain (loss) on captive insurance collateral
1,849
1,671
(4,952)
Tax effect of unrealized gain (loss) on captive insurance collateral
(390)
(352)
1,043
Unrealized gain (loss) on interest rate hedge
(1,928)
(399)
3,607
Tax effect of unrealized gain (loss) on interest rate hedge
512
105
(959)
Total other comprehensive income (loss)
1,072
2,083
(1,568)
Total comprehensive income
$
36,295
$
34,028 $
33,720
See accompanying notes to consolidated financial statements.
F-7
STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
Years Ended September 30, 2024, 2023 and 2022
Number of Units
(in thousands)
Common
General
Partner
Common
General
Partner
Accum. Other
Comprehensive
Income (Loss)
Total
Partners’
Capital
Balance as of September 30, 2021
39,046
326 $
295,063 $
(2,821) $
(14,038) $
278,204
Net income
35,007
281
—
35,288
Unrealized loss on pension plan obligation
—
—
(436)
(436)
Tax effect of unrealized loss on pension plan
obligation
—
—
129
129
Unrealized loss on captive insurance collateral
—
—
(4,952)
(4,952)
Tax effect of unrealized loss on captive insurance
collateral
—
—
1,043
1,043
Unrealized gain on interest rate hedge
—
—
3,607
3,607
Tax effect of unrealized gain on interest rate hedge
—
—
(959)
(959)
Distributions
(22,076)
(1,116)
—
(23,192)
Retirement of units
(2,954)
(30,817)
—
—
(30,817)
Balance as of September 30, 2022
36,092
326 $
277,177 $
(3,656) $
(15,606) $
257,915
Net income
31,657
288
—
31,945
Unrealized gain on pension plan obligation
—
—
1,463
1,463
Tax effect of unrealized gain on pension plan
obligation
—
—
(405)
(405)
Unrealized gain on captive insurance collateral
—
—
1,671
1,671
Tax effect of unrealized gain on captive insurance
collateral
—
—
(352)
(352)
Unrealized loss on interest rate hedge
—
—
(399)
(399)
Tax effect of unrealized loss on interest rate hedge
—
—
105
105
Distributions
(22,497)
(1,247)
—
(23,744)
Retirement of units
(489)
(4,475)
—
—
(4,475)
Balance as of September 30, 2023
35,603
326 $
281,862 $
(4,615) $
(13,523) $
263,724
Net income
34,912
311
—
35,223
Unrealized gain on pension plan obligation
—
—
1,291
1,291
Tax effect of unrealized gain on pension plan
obligation
—
—
(262)
(262)
Unrealized gain on captive insurance collateral
—
—
1,849
1,849
Tax effect of unrealized gain on captive insurance
collateral
—
—
(390)
(390)
Unrealized loss on interest rate hedge
—
—
(1,928)
(1,928)
Tax effect of unrealized loss on interest rate hedge
—
—
512
512
Distributions
(23,628)
(1,410)
—
(25,038)
Retirement of units
(1,016)
(11,088)
—
—
(11,088)
Balance as of September 30, 2024
34,587
326 $
282,058 $
(5,714) $
(12,451) $
263,893
See accompanying notes to consolidated financial statements.
F-8
STAR GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30,
(in thousands)
2024
2023
2022
Cash flows provided by (used in) operating activities:
Net income
$
35,223 $
31,945 $
35,288
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
(Increase) decrease in fair value of derivative instruments
19,018
1,977
17,286
Depreciation and amortization
32,482
33,434
33,553
Provision for losses on accounts receivable
8,042
9,761
5,411
Change in deferred taxes
(3,989)
(501)
(3,181)
Changes in operating assets and liabilities net of amounts related to acquisitions:
Decrease (increase) in receivables
11,271
15,566
(43,463)
Decrease (increase) in inventories
18,475
26,994
(21,105)
Decrease (increase) in other assets
8,786
13,873
(7,161)
(Decrease) increase in accounts payable
(3,926)
(13,824)
12,036
(Decrease) increase in customer credit balances
(15,546)
17,585
5,804
Increase (decrease) in other current and long-term liabilities
1,142
(13,152)
(561)
Net cash provided by operating activities
110,978
123,658
33,907
Cash flows provided by (used in) investing activities:
Capital expenditures
(10,653)
(9,012)
(18,701)
Proceeds from sales of fixed assets
515
958
815
Proceeds from sale of certain assets
—
2,202
184
Purchase of investments
(1,668)
(2,545)
(1,803)
Acquisitions
(49,379)
(19,800)
(13,121)
Net cash used in investing activities
(61,185)
(28,197)
(32,626)
Cash flows provided by (used in) financing activities:
Revolving credit facility borrowings
79,596
125,601
200,177
Revolving credit facility repayments
(79,831)
(145,637)
(188,519)
Proceeds from term loan
210,000
—
165,000
Loan repayments
(148,500)
(16,500)
(110,500)
Distributions
(25,038)
(23,744)
(23,192)
Unit repurchases
(11,088)
(4,475)
(30,817)
Customer retainage payments
(719)
(57)
(1,039)
Payments of debt issuance costs
(2,069)
(78)
(2,538)
Net cash provided by (used in) financing activities
22,351
(64,890)
8,572
Net increase (decrease) in cash, cash equivalents and restricted cash
72,144
30,571
9,853
Cash, cash equivalents and restricted cash at beginning of period
45,441
14,870
5,017
Cash, cash equivalents and restricted cash at end of period
$
117,585 $
45,441 $
14,870
See accompanying notes to consolidated financial statements.
F-9
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. 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, 2024, had outstanding 34.6 million Common Units (NYSE: “SGU”), representing a
99.1% limited partner interest in Star, and 0.3 million general partner units, representing a 0.9% 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, 2024 served
approximately 404,600 full service residential and commercial home heating oil and propane customers and 61,700 customers on a delivery
only basis. We also sell gasoline and diesel fuel to approximately 26,800 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 20,800 service contracts for natural gas and other heating systems.
•
Petroleum Heat and Power Co., Inc. (“PH&P”) is an indirect, wholly owned subsidiary of Star. PH&P is the borrower and Star is the guarantor
of the seventh amended and restated credit agreement’s $210 million five-year senior secured term loan and the $400 million ($475 million
during the heating season of December through April of each year) revolving credit facility, both due September 27, 2029. (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 (loss). Other comprehensive income (loss) consists of the
unrealized gain (loss) amortization on the Company’s pension plan obligation for its frozen defined benefit pension plan, unrealized gain (loss) on
available-for-sale investments, unrealized gain (loss) on interest rate hedges 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 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.
F-10
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 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.
F-11
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, 2024, the $117.6 million of cash, cash equivalents, and restricted cash on the consolidated statement of cash flows is comprised of $117.3
million of cash and cash equivalents and $0.3 million of restricted cash. At September 30, 2023, the $45.4 million of cash, cash equivalents, and restricted
cash on the consolidated statement of cash flows is comprised of $45.2 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 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
F-12
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 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 ended August 31, 2024, 2023, and 2022, 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.
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.
F-13
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.
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.
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 $15.0 million, $13.5 million, and $13.0 million, in 2024, 2023, and
2022, 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.
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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 and external consultants. 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.
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
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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 2022, 2023 and 2024. The hedge period runs from November 1 through March
31, taken as a whole. The “Payment Thresholds,” or strikes, are set at various levels and are referenced against degree days for the prior ten year average.
Under these contracts the maximum amount the Company can receive is $12.5 million annually. For the contracts applicable to fiscal 2022 and 2023, we
were additionally obligated to make an annual payment capped at $5.0 million if degree days exceeded the Payment Threshold. This obligation does not
exist under the contract applicable to fiscal year 2024.
The temperatures experienced during the hedge period through March 31, 2024 and March 31, 2023 and March 31, 2022 were warmer than the
strikes in the weather hedge contracts. As a result for fiscal 2024, 2023, and 2022, the Company reduced delivery and branch expenses for the gains
realized under those contracts of $7.5 million, $12.5 million and $1.1 million respectively. The amounts were received in full in April 2024, April 2023 and
April 2022, respectively.
For fiscal 2025, the Company entered into weather hedge contracts with the similar hedge period described above. The maximum that the Company
can receive is $15.0 million annually and we are additionally obligated to make an annual payment capped at $5.0 million if degree days exceed the
Payment Threshold.
Pension plan
The Company has one frozen defined benefit pension plan (“the Plan”). The Company has no post-retirement benefit plans. The Company
estimates the rate of return on plan assets and the discount rate used to estimate the present value of future benefit obligations in determining its annual
pension and other postretirement benefit cost. The Company believes that the assumptions utilized in recording its obligations under its plan are reasonable
based on its experience and market conditions.
Recently Adopted 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 Company adopted the standard effective October 1, 2023. The adoption did not have a material impact on its consolidated financial
statements and related disclosures.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which
is intended to improve reportable segment disclosure requirements, primarily
F-16
through enhanced disclosures about significant segment expenses. The disclosure requirements included in ASU No. 2023-07 are required for all public
entities, including entities with a single reportable segment. The standard is effective for fiscal years beginning after December 15, 2023. Early adoption is
permitted. The guidance is required to be applied on a retrospective basis. The Company is currently evaluating the impact of the standard on its
consolidated financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to income tax disclosures, which requires that an
entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The standard is
effective for fiscal years beginning after December 15, 2024. Adoption is either with a prospective method or a fully retrospective method of transition.
Early adoption is permitted. The Company has not determined the timing of adoption and is currently evaluating the impact of the new standard on its
consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures
(Subtopic 220-40): Disaggregation of Income Statement Expenses, requiring disclosure in the notes to the financial statements for specified information
about certain costs and expenses. The standard is effective for fiscal years beginning after December 15, 2026, with early adoption and retrospective
application permitted. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.
3) Revenue Recognition
The following disaggregates our revenue by major sources for the years ended September 30, 2024, 2023 and 2022:
Years Ended September 30,
(in thousands)
2024
2023
2022
Petroleum Products:
Home heating oil and propane
$
1,081,985 $
1,202,194 $
1,170,552
Motor fuel and other petroleum products
366,807
448,547
527,729
Total petroleum products
1,448,792
1,650,741
1,698,281
Installations and Services:
Equipment installations
123,493
114,756
121,023
Equipment maintenance service contracts
129,478
126,887
121,623
Billable call services
64,336
60,478
65,631
Total installations and services
317,307
302,121
308,277
Total Sales
$
1,766,099 $
1,952,862 $
2,006,558
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.
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Revenue from billable call services (repairs, maintenance and other services) 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 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,
2024 the amount of deferred contract costs included in “Prepaid expenses and other current assets” and “Deferred charges and other assets, net” was $2.9
million and $4.5 million, respectively. At September 30, 2023 the amount of deferred contract costs included in “Prepaid expenses and other current
assets” and “Deferred charges and other assets, net” was $3.3 million and $5.4 million, respectively. For the years ended September 30, 2024 and
September 30, 2023 we recognized expense of $3.6 million and $3.8 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, 2024, September 30, 2023 and September 30, 2022.
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 31% 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, 2024 and September 30, 2023 the Company had contract
liabilities of $167.2 million and $170.3 million, respectively. During the year ended September 30, 2024 the Company recognized $156.8 million of
revenue that was included in the September 30, 2023 contract liability balance. During the year ended September 30, 2023 the Company recognized $139.9
million of revenue that was included in the September 30, 2022 contract liability balance.
F-18
Receivables and Allowance for Doubtful Accounts
Changes in the allowance for credit losses are as follows:
(in thousands)
Credit Loss Allowance
Balance at September 30, 2023
$
8,375
Current period provision
8,042
Write-offs, net and other
(9,983)
Balance as of September 30, 2024
$
6,434
4) Quarterly Distribution of Available Cash
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). 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 credit agreement. The Company must maintain excess availability not less
than the greater of $40 million and 15% of the Line Cap (lesser of the revolving credit facility borrowings and the borrowing base) 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 2024, 2023, and 2022, cash distributions declared per common unit were $0.670, $0.630, and $0.590, respectively.
For fiscal 2024, 2023, and 2022, $1.3 million, $1.2 million, and $1.0 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 May 2023, the
Company had repurchased approximately 20.5 million Common Units under the Repurchase Plan. In May 2023, the Board authorized an increase of the
number of Common Units that remained available for the Company to repurchase from 1.1 million to a total of 2.6 million, of which, 2.3 million were
available for repurchase in open market transactions and 0.3 million were available for repurchase in privately-negotiated transactions. There is no
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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.
Under the credit agreement dated September 27, 2024, in order to repurchase Common Units we must maintain Availability (as defined in the credit
agreement) of not less than the greater of (i) 15% of the Line Cap (lesser of the revolving credit facility borrowings and the borrowing base) and (ii) $40
million 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 or
distribution. (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
Total Number
of Units
Purchased
Average Price
Paid per Unit
(a)
Total Number
of Units
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Maximum
Number
of Units that
May
Yet Be Purchased
Fiscal year 2012 to 2023 total
25,422 $
8.82
20,534
2,568
First quarter fiscal year 2024 total
13 $
11.27
13
2,555
Second quarter fiscal year 2024 total
218 $
10.92
218
2,337
Third quarter fiscal year 2024 total
598 $
10.86
598
1,739
Fourth quarter fiscal year 2024 total
187 $
11.02
187
1,552
Fiscal year 2024 total
1,016 $
10.91
1,016
1,552
October 2024
3 $
11.25
3
1,549
November 2024
5 $
11.12
5
1,544 (b)
(a)
Amounts include repurchase costs.
(b)
Of the total available for repurchase, approximately 1.2 million are available for repurchase in open market transactions and 0.3 million are available
for repurchase in privately-negotiated transactions.
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, 2024 consist
of the following (in thousands):
Amortized Cost
Gross Unrealized Gain
Gross Unrealized
(Loss)
Fair Value
Cash and Receivables
$
5,741
$
—
$
— $
5,741
U.S. Government Debt Securities
57,095
108
(104)
57,099
Corporate Debt Securities
12,465
—
(454)
12,011
Total
$
75,301
$
108
$
(558) $
74,851
Investments at September 30, 2023 consist of the following (in thousands):
Amortized Cost
Gross Unrealized
Gain
Gross Unrealized
(Loss)
Fair Value
Cash and Receivables
$
4,335 $
— $
— $
4,335
U.S. Government Sponsored Agencies
50,471
—
(1,620)
48,851
Corporate Debt Securities
18,210
12
(691)
17,531
Total
$
73,016 $
12 $
(2,311) $
70,717
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Maturities of investments were as follows at September 30, 2024 (in thousands):
Net Carrying Amount
Due within one year
$
67,588
Due after one year through five years
7,263
Due after five years through ten years
—
Total
$
74,851
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, 2024, 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: 12.2 million gallons of
swap contracts with a notional value of $29.4 million and a fair value of $(2.8) million, 6.0 million gallons of call options with a notional value of $18.2
million and a fair value of less than $0.1 million, 7.1 million gallons of put options with a notional value of $12.7 million and a fair value of $0.3 million,
and 52.1 million net gallons of synthetic call options with an average notional value of $133.9 million and a fair value of $(9.2) 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, 2024, had
6.2 million gallons of short future contracts that settle daily with a notional value of $14.0 million and a fair value of $0.6 million and had 0.7 million
gallons of swap contracts with a notional value of $1.4 million and a fair value of less than $0.1 million. To hedge its internal fuel usage and other related
activities for fiscal 2025, the Company, as of September 30, 2024, had 8.4 million gallons of swap contracts with a notional value of $20.3 million and a
fair value of $(2.3) million that settle in future months.
As of September 30, 2023, 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: 9.3 million gallons of
swap contracts with a notional value of $26.1 million and a fair value of $1.9 million, 8.1 million gallons of call options with a notional value of $25.6
million and a fair value of $1.7 million, 4.2 million gallons of put options with a notional value of $9.3 million and a fair value of $0.1 million, and 57.3
million net gallons of synthetic call options with an average notional value of $164.2 million and a fair value of $4.0 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, 2023, had 10.0
million gallons of short future contracts that settle daily with a notional value of $28.2 million and a fair value of $(3.8) million. To hedge its internal fuel
usage and other related activities for fiscal 2024, the Company, as of September 30, 2023, had 7.7 million gallons of swap contracts with a notional value of
$19.1 million and a fair value of $2.9 million that settle in future months.
As of September 30, 2024, the Company has interest rate swap agreements in order to mitigate exposure to market risk associated with variable rate
interest on $52.0 million, or 25%, 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, 2024 the fair value of the swap
contracts was $(0.3) million. As of September 30, 2023, the notional value of the swap contracts was $55.5 million and the fair value of the swap contracts
was $1.6 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., Mieco LLC and Wells Fargo Bank,
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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, 2024, the aggregate cash posted as collateral in the normal course of business at counterparties was $0.3 million. Positions with counterparties who are
also parties to our credit agreement are collateralized under that facility. As of September 30, 2024, $14.2 million hedge positions or 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)
Fair Value Measurements at
Reporting Date Using:
Derivatives Not Designated
as Hedging Instruments
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Under FASB ASC 815-10
Balance Sheet Location
Total
Level 1
Level 2
Asset Derivatives at September 30, 2024
Commodity contracts
Fair liability value of derivative instruments
$
16,948 $
— $
16,948
Commodity contracts
Long-term derivative assets included in the
deferred charges and other assets, net and other
long-term liabilities, net balances
831
—
831
Commodity contract assets at September 30, 2024
$
17,779 $
— $
17,779
Liability Derivatives at September 30, 2024
Commodity contracts
Fair liability value of derivative instruments
$
(30,919) $
— $
(30,919)
Commodity contracts
Long-term derivative liabilities included in the
deferred charges and other assets, net and other
long-term liabilities, net balances
(965)
—
(965)
Commodity contract liabilities at September 30, 2024
$
(31,884) $
— $
(31,884)
Asset Derivatives at September 30, 2023
Commodity contracts
Fair asset and liability value of derivative
instruments
$
17,891 $
— $
17,891
Commodity contracts
Long-term derivative assets included in the
deferred charges and other assets, net and other
long-term liabilities, net balances
779
—
779
Commodity contract assets at September 30, 2023
$
18,670 $
— $
18,670
Liability Derivatives at September 30, 2023
Commodity contracts
Fair asset and liability value of derivative
instruments
$
(7,349) $
— $
(7,349)
Commodity contracts
Long-term derivative liabilities included in the
deferred charges and other assets, net and other
long-term liabilities, net balances
(679)
—
(679)
Commodity contract liabilities at September 30, 2023
$
(8,028) $
— $
(8,028)
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)
Gross Amounts Not Offset in the
Statement of Financial Position
Offsetting of Financial Assets (Liabilities)
and Derivative Assets (Liabilities)
Gross
Assets
Recognized
Gross
Liabilities
Offset
in the
Statement
of Financial
Position
Net Assets
(Liabilities)
Presented
in the
Statement of
Financial
Position
Financial
Instruments
Cash
Collateral
Received
Net
Amount
Long-term derivative assets included in
deferred charges and other assets, net
5
(3)
2
—
—
2
Fair liability value of derivative instruments
16,948
(30,919)
(13,971)
—
—
(13,971)
Long-term derivative liabilities included in
other long-term liabilities, net
826
(962)
(136)
—
—
(136)
Total at September 30, 2024
$
17,779 $
(31,884) $
(14,105) $
— $
— $
(14,105)
Fair asset value of derivative instruments
$
17,815 $
(7,155) $
10,660 $
— $
— $
10,660
Long-term derivative assets included in
deferred charges and other assets, net
567
(452)
115
—
—
115
Fair liability value of derivative instruments
76
(194)
(118)
—
—
(118)
Long-term derivative liabilities included in
other long-term liabilities, net
212
(227)
(15)
—
—
(15)
Total at September 30, 2023
$
18,670 $
(8,028) $
10,642 $
— $
— $
10,642
(In thousands)
The Effect of Derivative Instruments on the Statement of Operations
Amount of (Gain) or Loss Recognized
Years Ended September 30,
Derivatives Not
Designated as Hedging
Instruments Under FASB ASC 815-10
Location of (Gain) or Loss Recognized in
Income on Derivative
2024
2023
2022
Commodity contracts
Cost of product (a)
$
20,268 $
17,268 $
(34,523)
Commodity contracts
Cost of installations and service (a)
$
(184) $
16 $
(1,555)
Commodity contracts
Delivery and branch expenses (a)
$
(865) $
434 $
(3,423)
Commodity contracts
(Increase) / decrease in the fair value of derivative instruments (b)
$
19,018 $
1,977 $
17,286
(a) Represents realized closed positions and includes the cost of options as they expire.
(b) Represents the change in value of unrealized open positions and expired options.
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):
September 30,
2024
2023
Product
$
17,912 $
33,994
Parts and equipment
23,675
22,469
Total inventory
$
41,587 $
56,463
Product inventories were comprised of 8.4 million gallons and 11.8 million gallons on September 30, 2024 and September 30, 2023, respectively.
The Company has market price based product supply contracts for approximately 180.2
F-24
million gallons of home heating oil and propane, and 57.6 million gallons of diesel and gasoline, which it expects to fully utilize to meet its requirements
over the next twelve months.
During fiscal 2024, Shell Trading and Shell Oil Products US provided approximately 16% of our petroleum product purchases and Motiva
Enterprises LLC provided approximately 15% of our petroleum product purchases. During fiscal 2023, Shell Trading and Shell Oil Products US provided
approximately 18% of our petroleum product purchases and Motiva Enterprises LLC provided approximately 14% of our petroleum product purchases.
9) Property and Equipment
The components of property and equipment were as follows (in thousands):
September 30,
2024
2023
Land and land improvements
$
24,566 $
24,832
Buildings and leasehold improvements
46,806
48,118
Fleet and other equipment
84,008
79,270
Tanks and equipment
66,783
63,639
Furniture, fixtures and office equipment
28,733
28,957
Total
250,896
244,816
Less accumulated depreciation and amortization
146,362
139,412
Property and equipment, net
$
104,534 $
105,404
Depreciation and amortization expense related to property and equipment was $13.5 million, $13.8 million, and $14.4 million, for the fiscal years
ended September 30, 2024, 2023 and 2022 respectively.
10) Business Combinations
During fiscal 2024, the Company acquired one propane and four heating oil businesses for approximately $49.4 million in cash. The gross purchase
price was allocated $40.4 million to intangible assets, $13.7 million to goodwill, $4.9 million to fixed assets and reduced by $9.6 million of negative
working capital. 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 2023, the Company acquired one propane and two heating oil businesses for approximately $19.8 million in cash. The gross purchase
price was allocated $10.4 million to intangible assets, $8.0 million to goodwill, $2.3 million to fixed assets and reduced by $0.9 million of negative working
capital. 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 2022, the Company acquired five heating oil businesses for approximately $15.6 million (using $13.1 million in cash and assuming
$2.5 million of liabilities). The gross purchase price was allocated $7.3 million to intangible assets, $3.1 million to goodwill, $5.6 million to fixed assets
and reduced by $0.4 million of negative working capital. 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.
F-25
11) Goodwill and Other Intangible Assets
Goodwill
A summary of changes in the Company’s goodwill during the fiscal years ended September 30, 2024 and 2023 are as follows (in thousands):
Balance as of September 30, 2022
$
254,110
Fiscal year 2023 business combinations
7,993
Balance as of September 30, 2023
262,103
Fiscal year 2024 business combinations
13,726
Balance as of September 30, 2024
$
275,829
Intangibles, net
Intangible assets subject to amortization consist of the following (in thousands):
September 30,
2024
2023
Gross
Gross
Carrying
Accum.
Carrying
Accum.
Amount
Amortization
Net
Amount
Amortization
Net
Customer lists
$
452,340 $
373,860 $
78,480 $
418,190 $
358,855 $
59,335
Trade names and other intangibles
46,895
26,663
20,232
41,782
24,811
16,971
Total
$
499,235 $
400,523 $
98,712 $
459,972 $
383,666 $
76,306
Amortization expense for intangible assets was $18.0 million, $18.6 million, and $18.2 million, for the fiscal years ended September 30, 2024, 2023,
and 2022, respectively. Total estimated annual amortization expense related to intangible assets subject to amortization, for the year ending September 30,
2025 and the four succeeding fiscal years ending September 30, is as follows (in thousands):
Amount
2025
$
17,036
2026
$
13,985
2027
$
13,267
2028
$
11,148
2029
$
9,814
12) Accrued Expenses and Other Current Liabilities
The components of accrued expenses and other current liabilities were as follows (in thousands):
September 30,
2024
2023
Accrued wages and benefits
$
27,710 $
26,303
Self-insurance liabilities
76,718
77,546
Other accrued expenses and other current liabilities
11,889
11,757
Total accrued expenses and other current liabilities
$
116,317 $
115,606
F-26
13) Long-Term Debt and Bank Facility Borrowings
The Company's debt is as follows
September 30,
(in thousands):
2024
2023
Carrying
Carrying
Amount
Fair Value (a)
Amount
Fair Value (a)
Revolving Credit Facility Borrowings
$
5 $
5 $
240 $
240
Senior Secured Term Loan (b)
208,811
210,000
147,827
148,500
Total debt
$
208,816 $
210,005 $
148,067 $
148,740
Total short-term portion of debt
$
21,005 $
21,005 $
20,740 $
20,740
Total long-term portion of debt
$
187,811 $
189,000 $
127,327 $
128,000
(a)
The face amount of the Company’s variable rate long-term debt approximates fair value.
(b)
Carrying amounts are net of unamortized debt issuance costs of $1.2 million as of September 30, 2024 and $0.7 million as of September 30,
2023.
On September 27, 2024, the Company refinanced its five-year term loan and the revolving credit facility with the execution of the seventh amended
and restated revolving credit facility agreement (the “credit agreement”) with a bank syndicate comprised of ten participants, which enables the Company
to borrow up to $400 million ($475 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 $210 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 September 27, 2029.
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 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 September 27, 2029. The Term Loan
is repayable in quarterly payments of $5.3 million, plus an annual payment equal to 25% of the annual Excess Cash Flow as defined in the credit agreement
(an amount not to exceed $4.0 million annually), less certain voluntary prepayments made during the year, with final payment at maturity. As of September
30, 2024, the Company is not required to make additional term loan repayments due to Excess Cash Flow for the fiscal year ended September 30, 2024. In
fiscal 2024, the Company repaid $4.0 million of additional loan repayments due to Excess Cash Flow related to fiscal 2023.
The interest rate on the revolving credit facility and the term loan is based on a margin over Adjusted Term Secured Overnight Financing Rate
("SOFR") or a base rate. At September 30, 2024, the effective interest rate on the term loan and revolving credit facility borrowings was approximately
7.2% and 7.5%, respectively. At September 30, 2023, the effective interest rate on the term loan and revolving credit facility borrowings was approximately
6.6% and 6.3%, 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 of 1.10 if we permit
Availability (as defined in the credit agreement) to be less than the greater of (a) 12.5% of the Line Cap (lesser of the revolving credit facility borrowings
and the borrowing base) and (b) $35.0 million. 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 5.5 as calculated as of the quarters ending December or March.
F-27
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, 2024, $210.0 million of the term loan was outstanding, less than $0.1 million was outstanding under the revolving credit facility,
$14.2 million hedge positions were secured under the credit agreement and $5.2 million of letters of credit were issued and outstanding. At September 30,
2023, $148.5 million of the term loan was outstanding, $0.2 million was outstanding under the revolving credit facility, $0.1 million hedge positions were
secured under the credit agreement and $3.2 million of letters of credit were issued and outstanding.
At September 30, 2024, availability was $166.5 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 $254.0 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, 2023, availability was $202.1
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 $253.7 million.
As of September 30, 2024, 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):
2025
$
21,005
2026
$
21,000
2027
$
21,000
2028
$
21,000
Thereafter
$
126,000
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 2024, 2023, and 2022, were $8.5
million, $8.5 million, and $8.5 million, respectively. The Company’s aggregate contribution to the other defined contribution plans for fiscal years 2024,
2023, and 2022, were $0.5 million, $0.5 million, and $0.5 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 2024
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
F-28
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 $2,644,000 during fiscal 2024,
$2,321,000 during fiscal 2023, and $2,055,000 during fiscal 2022. Included in these amounts for fiscal 2024, 2023, and 2022, were distributions under the
management incentive compensation plan of $1,322,000, $1,160,000, and $1,028,000, respectively, of which named executive officers received
approximately $558,867 during fiscal 2024, $490,485 during fiscal 2023, and $434,431 during fiscal 2022. 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.
Multiemployer Pension Plans
At September 30, 2024, approximately 39% of our employees were covered by collective bargaining agreements and approximately 12% 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, 2024, 2023,
and 2022. 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 2024 and 2023 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, 2024 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 2024, 2023 and 2022, 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-29
Pension Protection
Act Zone
Status
FIP / RP Status
Company
Contributions
(in thousands)
Pension Fund
EIN
/ Pension Plan
Number
2024
2023
Pending /
Implemented
2024
2023
2022
Surcharge
Imposed
Expiration Date
of Collective-
Bargaining
Agreements
New England Teamsters and
Trucking Industry Pension
Fund
04-6372430/ 001
Red
Red
Yes / Implemented
2,627
2,721
2,605
No
8/31/27 to 4/30/29
Westchester Teamsters
Pension Fund
13-6123973/ 001
Green
Green
N/A
921
964
1,153
No
12/31/24 to 1/31/29
Local 553 Pension Fund
13-6637826/ 001
Green
Green
N/A
2,457
2,516
2,741
No
12/15/25 to 1/15/26
Local 463 Pension Fund
11-1800729/ 001
Green
Green
N/A
119
125
133
No
6/30/25 to 2/28/26
IAM National Pension Fund
51-6031295/ 002
Red
Red
Yes / Implemented
2,749
2,477
2,585
Yes
10/31/24 to 6/30/27
Teamsters Local 469 Pension
Plan
22-6172237 / 001
Red
Red
Yes / Implemented
11
18
21
Yes
8/31/2024
Local 445 Pension Fund
13-1864489/ 001
Red
Red
Yes / Implemented
7
9
8
Yes
10/31/2024
All Other Multiemployer
Pension Plans
444
481
391
Total Contributions $ 9,335 $
9,311 $
9,637
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, 2024 we had $0.3 million and $15.7 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. As of
September 30, 2023 we had $0.3 million and $16.0 million balances included in the captions accrued expenses and other current liabilities and other long-
term liabilities, respectively. 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, 2024 and September 30, 2023 were $19.3 million and $18.5 million, respectively. We utilized
Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.
Defined Benefit Plan
Effective December 31, 2023, the Company merged its two frozen defined benefit plans into one plan (“the Plan”). The Company has no post-
retirement benefit plans.
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
F-30
comprehensive income at the dates indicated using a measurement date of September 30 (in thousands). Certain amounts in the table have been reclassified
to conform with current year presentation.
Gross Pension
Net Periodic
Fair
Related
Pension
Value of
Accumulated
Cost in
Pension
Projected
Other
Other
Income
Plan
Benefit
Comprehensi
ve
Comprehensi
ve
Debit / (Credit)
Statement
Cash
Assets
Obligation
(Income) /
Loss
Income
Fiscal Year 2022
Beginning balance
$
65,337 $
(61,294)
$
11,493
Funded status at the end of the year
$
4,043
Interest cost
1,560
(1,560)
Actual return on plan assets
13,151
(13,151)
Employer contributions
—
—
Benefit payments
(4,225)
4,225
Investment and other expenses
(507)
507
Difference between actual and expected return on plan assets
(15,200)
15,200
Anticipated expenses
—
—
Actuarial gain
13,869
(13,869)
Amortization of unrecognized net actuarial loss
896
(896)
Annual cost/change
$
407 $
—
(17,883)
17,041 $
435
435
Ending balance
$
47,454 $
(44,253)
$
11,928
Funded status at the end of the year
$
3,201
Fiscal Year 2023
Interest cost
2,312
(2,312)
Actual return on plan assets
(1,196)
1,196
Employer contributions
(64)
64
Benefit payments
(3,936)
3,936
Investment and other expenses
(572)
572
Difference between actual and expected return on plan assets
(635)
635
Anticipated expenses
—
—
Actuarial gain
572
(572)
Amortization of unrecognized net actuarial loss
1,526
(1,526)
Annual cost/change
$
2,007 $
(64)
(3,248)
2,768 $
(1,463)
(1,463)
Ending balance
$
44,206 $
(41,485)
$
10,465
Funded status at the end of the year
$
2,721
Fiscal Year 2024
Interest cost
2,133
(2,133)
Actual return on plan assets
(6,672)
6,672
Benefit payments
(3,649)
3,649
Investment and other expenses
(239)
239
Difference between actual and expected return on plan assets
4,558
(4,558)
Anticipated expenses
—
—
Actuarial loss
(4,544)
4,544
Amortization of unrecognized net actuarial loss
1,277
(1,277)
Annual cost/change
$
1,296 $
—
2,784
(2,789) $
(1,291)
(1,291)
Ending balance
$
46,990 $
(44,274)
$
9,174
Funded status at the end of the year
$
2,716
F-31
At September 30, 2024 the amounts included on the balance sheet in deferred charges and other assets were $2.7 million, and at September 30, 2023
the amounts included on the balance sheet in deferred charges and other assets were $2.7 million.
For the fiscal year ended September 30, 2024, the actuarial loss was primarily due to the decrease in the weighted average discount rate relating to
the frozen defined benefit plan from 5.85% as of September 30, 2023 to 4.70% as of September 30, 2024. For the fiscal year ended September 30, 2023 the
actuarial gain affecting the benefit obligations were not material.
The $9.2 million net actuarial loss balance at September 30, 2024 for the frozen defined benefit pension plan in accumulated other comprehensive
income will be recognized and amortized into net periodic pension costs as an actuarial loss in future years.
September 30,
Weighted-Average Assumptions Used in the Measurement of the Company’s
Benefit Obligation
2024
2023
2022
Discount rate at year end date
4.70%
5.85%
5.50%
Expected return on plan assets for the year ended
5.20%
4.56%
3.77%
Rate of compensation increase
N/A
N/A
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 2025, the Company’s assumption for return on plan assets will be
5.1% per annum.
The discount rate used to determine net periodic pension expense for fiscal year 2024, 2023, and 2022 was 4.7%, 5.85%, and 5.5%, 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 and 10%
domestic equities) 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 3 pension plan assets during the two years ended September 30, 2024 and September 30, 2023. The fair values and
percentage of the Company’s pension plan assets by asset category are as follows (in thousands):
September 30,
2024
2023
Concentration
Concentration
Asset Category
Level 1
Level 2
Percentage
Level 1
Percentage
Corporate and U.S. government bond fund (1)
$
— $
41,330
88%
$
39,852
90%
U.S. large-cap equity (1)
5,660
—
12%
3,244
7%
International equity (1)
—
—
0%
808
2%
Cash
—
—
0%
302
1%
Total
$
5,660 $
41,330
100%
$
44,206
100%
(1)
Represent investments in Principal funds at September 30, 2024 and Vanguard funds at September 30, 2023 that seek to replicate the asset category
description.
F-32
The Company is not obligated to make a minimum required contribution in fiscal year 2024, and currently does not expect to make an optional
pension contribution.
Expected benefit payments over each of the next five years will total approximately $3.9 million per year. Expected benefit payments for the five
years thereafter will aggregate approximately $16.0 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 elected to defer the payment of its portion of Social Security taxes through September 30, 2023 of $5.2 million and recorded a related
deferred tax asset of $1.5 million at September 30, 2023. No amount is deferred as of September 30, 2024.
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, 2023.
Income tax expense is comprised of the following for the indicated periods (in thousands):
Years Ended September 30,
2024
2023
2022
Current:
Federal
$
11,964 $
9,902 $
11,900
State
5,356
4,583
5,019
Deferred
Federal
(2,719)
(843)
(2,563)
State
(1,270)
342
(618)
$
13,331
$
13,984 $
13,738
The provision for income taxes differs from income taxes computed at the Federal statutory rate as a result of the following (in thousands):
Years Ended September 30,
2024
2023
2022
Income from continuing operations before taxes
$
48,554 $
45,929 $
49,026
Provision for income taxes:
Tax at Federal statutory rate
$
10,196 $
9,645 $
10,295
State taxes net of federal benefit
3,145
3,401
3,251
Permanent differences
286
520
249
Expiration of State NOL
2,160
—
—
Change in valuation allowance
(2,328)
252
208
Other
(128)
166
(265)
$
13,331 $
13,984 $
13,738
F-33
The components of the net deferred taxes for the years ended September 30, 2024 and September 30, 2023 using current tax rates are as follows (in
thousands):
September 30,
2024
2023
Deferred tax assets:
Operating lease liabilities
$
26,534 $
27,473
Net operating loss carryforwards
2,516
5,178
Vacation accrual
2,785
2,775
Pension accrual
3,507
3,696
Allowance for bad debts
1,687
2,285
Insurance accrual
1,628
1,870
Inventory capitalization
—
955
Fair value of derivative instruments
4,261
—
Other, net
350
198
Total deferred tax assets
43,268
44,430
Valuation allowance
(2,109)
(4,437)
Net deferred tax assets
$
41,159 $
39,993
Deferred tax liabilities:
Operating lease right-of-use assets
$
25,257 $
26,025
Property and equipment
14,502
14,937
Intangibles
20,152
19,897
Fair value of derivative instruments
—
1,270
Other, net
3,170
3,635
Total deferred tax liabilities
$
63,081 $
65,764
Net deferred taxes
$
(21,922) $
(25,771)
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, 2024 was $(2.3) million. The net
change in the total valuation allowance for the fiscal year ended September 30, 2023 was $0.3 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, 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, 2024.
As of January 1, 2024, the Company had State tax effected net operating loss carry forwards (“NOLs”) of approximately $0.6 million after
consideration of valuation allowances. The State NOLs, which will expire between 2024 and 2038, are generally available to offset any future taxable
income in certain states
At September 30, 2024, 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-34
16) Leases
The Company has entered into certain operating leases for office space, vehicles and other equipment with lease terms between one to twenty two
years, expiring between 2024 and 2046. 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 is comprised of the following for the indicated periods:
Years Ended September 30,
(in thousands)
2024
2023
2022
Lease cost:
Operating lease cost
$
25,294 $
23,637 $
23,186
Short-term lease cost
754
818
1,024
Variable lease cost
6,153
5,598
7,400
Total lease cost
$
32,201 $
30,053 $
31,610
Other information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
25,504 $
23,622 $
22,513
Right-of-use assets obtained in exchange for new operating lease liabilities
$
20,619 $
15,994 $
16,366
Weighted-average remaining lease term – operating leases
5.3 years
5.6 years
6.1 years
Weighted-average discount rate – operating leases
6.3%
5.9%
5.4%
Maturities of noncancelable operating lease liabilities as of September 30, 2024 are as follows:
September 30,
(in thousands)
2024
2025
$
25,240
2026
23,795
2027
19,664
2028
15,276
2029
11,618
Thereafter
17,806
Total undiscounted lease payments
113,399
Less imputed interest
(17,651)
Total lease liabilities
$
95,748
17) Supplemental Disclosure of Cash Flow Information
Years Ended September 30,
(in thousands)
2024
2023
2022
Cash paid during the period for:
Income taxes, net
$
17,134 $
15,130 $
17,122
Interest
$
15,214 $
17,805 $
10,077
18) Commitments and Contingencies
The Company’s operations are subject to the operating hazards and risks normally incidental to handling, storing and transporting and otherwise
providing for use by consumers hazardous liquids such as home heating oil and propane. In the ordinary course of business, the Company is a defendant in
various legal proceedings and litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably
estimable. We do not believe these matters, when considered individually or in the aggregate, could reasonably be expected to have a material adverse
effect on the Company’s results of operations, financial position or liquidity.
F-35
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:
Years Ended September 30,
(in thousands, except per unit data)
2024
2023
2022
Net income
$
35,223 $
31,945 $
35,288
Less General Partners’ interest in net income
311
288
281
Net income available to limited partners
34,912
31,657
35,007
Less dilutive impact of theoretical distribution of
earnings *
3,125
2,600
3,230
Limited Partner’s interest in net income
$
31,787 $
29,057 $
31,777
Per unit data:
Basic and diluted net income available to limited partners
$
0.99 $
0.89 $
0.94
Less dilutive impact of theoretical distribution of
earnings *
0.09
0.08
0.09
Limited Partner’s interest in net income under
$
0.90 $
0.81 $
0.85
Weighted average number of Limited Partner units outstanding
35,273
35,694
37,384
* 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-36
20) Selected Quarterly Financial Data (unaudited)
Three Months Ended
Dec. 31,
Mar. 31,
Jun. 30,
Sep. 30,
(in thousands - except per unit data)
2023
2024
2024
2024
Total
Sales
$
528,096 $
666,032 $
331,640 $
240,331 $
1,766,099
Gross profit for product, installations and services
149,651
206,046
88,247
57,880
501,824
Operating income (loss)
21,621
100,331
(12,291)
(48,559)
61,102
Income (loss) before income taxes
18,153
96,244
(15,201)
(50,642)
48,554
Net income (loss)
12,979
68,374
(11,044)
(35,086)
35,223
Limited Partner interest in net income (loss)
12,861
67,754
(10,943)
(34,760)
34,912
Net income (loss) per Limited Partner unit:
Basic and diluted (a)
$
0.32 $
1.56 $
(0.31) $
(1.00) $
0.90
Three Months Ended
Dec. 31,
Mar. 31,
Jun. 30,
Sep. 30,
(in thousands - except per unit data)
2022
2023
2023
2023
Total
Sales
$
648,187 $
737,617 $
300,121 $
266,937 $
1,952,862
Gross profit for product, installations and services
152,551
203,039
64,428
50,733
470,751
Operating income (loss)
23,605
91,515
(29,586)
(22,989)
62,545
Income (loss) before income taxes
19,002
86,294
(33,196)
(26,171)
45,929
Net income (loss)
13,539
62,041
(23,906)
(19,729)
31,945
Limited Partner interest in net income (loss)
13,417
61,479
(23,690)
(19,549)
31,657
Net income (loss) per Limited Partner unit:
Basic and diluted (a)
$
0.33 $
1.42 $
(0.67) $
(0.55) $
0.81
(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 2024, we declared a quarterly distribution of $0.1725 per unit, or $0.69 per unit on an annualized basis, on all Common Units with
respect to the fourth quarter of fiscal 2024, paid on November 6, 2024, to holders of record on October 28, 2024. 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, $6.0 million was paid to the Common Unit holders, $0.4 million to the General Partner unit holders (including $0.3 million
of incentive distribution as provided in our Partnership Agreement) and $0.3 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.
Acquisition
Subsequent to September 30, 2024, the Company purchased the customer list and assets of a heating oil business for an aggregate amount of
approximately $0.7 million.
F-37
Schedule I
STAR GROUP, L.P. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
September 30,
(in thousands)
2024
2023
Balance Sheets
ASSETS
Current assets
Cash and cash equivalents
$
40 $
41
Prepaid expenses and other current assets
343
344
Total current assets
383
385
Investment in subsidiaries (a)
263,597
263,341
Total Assets
$
263,980 $
263,726
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accrued expenses
$
87 $
2
Total current liabilities
87
2
Partners’ capital
263,893
263,724
Total Liabilities and Partners’ Capital
$
263,980 $
263,726
(a)
Investments in Star Acquisitions, Inc. and subsidiaries are recorded in accordance with the equity method of accounting.
F-38
Schedule I
STAR GROUP, L.P. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Years Ended September 30,
(in thousands)
2024
2023
2022
Statements of Operations
Revenues
$
— $
— $
—
General and administrative expenses
1,621
1,607
1,588
Operating loss
(1,621)
(1,607)
(1,588)
Net loss before equity income
(1,621)
(1,607)
(1,588)
Equity income of Star Acquisitions Inc. and subs
36,844
33,552
36,876
Net income
$
35,223 $
31,945 $
35,288
F-39
Schedule I
STAR GROUP, L.P. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Years Ended September 30,
(in thousands)
2024
2023
2022
Statements of Cash Flows
Cash flows provided by operating activities:
Net cash provided by operating activities (a)
$
36,125 $
28,219 $
54,005
Cash flows provided by investing activities:
Net cash provided by investing activities
—
—
—
Cash flows used in financing activities:
Distributions
(25,038)
(23,744)
(23,192)
Unit repurchase
(11,088)
(4,475)
(30,817)
Net cash used in financing activities
(36,126)
(28,219)
(54,009)
Net decrease in cash
(1)
—
(4)
Cash and cash equivalents at beginning of period
41
41
45
Cash and cash equivalents at end of period
$
40 $
41 $
41
(a) Includes distributions from subsidiaries
$
36,125 $
28,219 $
54,005
F-40
STAR GROUP, L.P. AND SUBSIDIARIES
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended September 30, 2024, 2023, 2022
(in thousands)
Year
Description
Balance at
Beginning
of Year
Charged
to Costs &
Expenses
Other
Changes
Add (Deduct)
Balance at
End of Year
2024
Allowance for doubtful accounts
$
8,375 $
8,042 $
(9,983) (a) $
6,434
2023
Allowance for doubtful accounts
$
7,755 $
9,761 $
(9,141) (a)
$
8,375
2022
Allowance for doubtful accounts
$
4,779 $
5,411 $
(2,435) (a) $
7,755
(a)
Bad debts written off (net of recoveries).
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
Exhibit 31.1
CERTIFICATIONS
I, Jeffrey M. Woosnam, certify that:
1.
I have reviewed this annual report on Form 10-K of Star Group, L.P. (“Registrant”);
2.
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;
3.
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;
4.
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)
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;
(b)
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;
(c)
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
(d)
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)
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;
(b)
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 4, 2024
/s/ JEFFREY M. WOOSNAM
Jeffrey M. Woosnam
President and Chief Executive Officer
Star Group, L.P.
Exhibit 31.2
CERTIFICATIONS
I, Richard F. Ambury, certify that:
1.
I have reviewed this annual report on Form 10-K of Star Group, L.P. (“Registrant”);
2.
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;
3.
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;
4.
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)
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;
(b)
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;
(c)
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
(d)
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)
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;
(d)
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 4, 2024
/S/ RICHARD F. AMBURY
Richard F. Ambury
Chief Financial Officer
Star Group, L.P.
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Star Group, L.P. (the “Company”) on Form 10-K for the year ended September 30, 2024 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)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
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.
STAR GROUP, L.P.
By: KESTREL HEAT, LLC (General Partner)
Date: December 4, 2024
By:
/s/ JEFFREY M. WOOSNAM
Jeffrey M. Woosnam
President and Chief Executive Officer
Star Group, L.P.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Star Group, L.P. (the “Company”) on Form 10-K for the year ended September 30, 2024 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)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
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.
STAR GROUP, L.P.
By: KESTREL HEAT, LLC (General Partner)
Date: December 4, 2024
By:
/S/ RICHARD F. AMBURY
Richard F. Ambury
Chief Financial Officer
Star Group, L.P.
Exhibit 97
Page 1 of NUMPAGES 5
Star Group, L.P.
Incentive Compensation Recovery Policy
Dated October 19, 2023
The Board of Directors (the “Board”) of Kestrel Heat, LLC (the “General Partner”), the general partner of Star Group, L.P. (the
“Company”), has adopted this Incentive Compensation Recovery Policy (the “Policy”) dated as of October 19, 2023, but effective for all
purposes as of October 2, 2023 (the “Effective Date”), which provides for the recovery of certain executive compensation in the event of an
accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws. This
Policy is intended to comply with Section 10D of the Securities Exchange Act of 1934 (the “Exchange Act”) and the listing standards of the
New York Stock Exchange (the “NYSE”) or such other national securities exchange on which the Company’s securities are listed.
1.
Covered Executives
This Policy applies to the Company's current and former “executive officers”, as such term is defined in Rule 10D-1(d) promulgated
under the Exchange Act (the “Covered Executives”) who served in the capacity as “executive officer” at any time during the performance
period for receiving Incentive-Based Compensation (as defined below). The General Partner expects to designate each of the Covered
Executives and notify them of their status as such on an annual basis (or more frequently in the case of any changes in the Company’s
officers). However, in the absence of such designation and notification, the Company officers who are required to prepare and file reports
under Section 16 of the Exchange Act shall be deemed Covered Executives for purposes of this Policy.
2.
Recovery in General; Applicable Accounting Restatements
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company's material
noncompliance with any financial reporting requirement under the securities laws, including any required accounting restatement to correct
an error in previously issued financial statements that is material to the previously issued financial statements (i.e., a “Big R” Restatement),
or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (i.e., a
“little r” restatement” and, a “Big R” restatement, are collectively referred to as an “Accounting Restatement”), the General Partner will
cause the Company to promptly recover any erroneously awarded Incentive-Based Compensation (as defined below) received by any
Covered Executive during the three completed fiscal years immediately preceding the date on which the Company is required to prepare such
an Accounting Restatement (including, where required under Section 10D of the Exchange Act, any transition period resulting from a change
in the Company’s fiscal year). For the avoidance of any doubt, an out-of-period adjustment when the error resulting in such out-of-period
adjustment is immaterial to previously issued financial statements and is immaterial to the current period’s financial statements does not
qualify as an Accounting Restatement for which recovery is required under this Policy. Notwithstanding anything to the contrary contained
in this Policy, the Company shall not be required to recover any Incentive-Based Compensation from any Covered Executive prior to such
time as such person began service as an “executive officer”.
For this purpose, the date that the Company is required to prepare an Accounting Restatement shall be the earlier of (i) the date that
the Board of the General Partner, or the officer or officers of the Company authorized to take such action if Board action is not required,
concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement; or (ii) the date a court,
regulator or other legally authorized body directs the Company to prepare an Accounting Restatement.
For purposes of this Policy, Incentive-Based Compensation shall be deemed to be received by a
Exhibit 97
Page 2 of NUMPAGES 5
Covered Executive in the Company’s fiscal period during which the Financial Reporting Measure (as defined below) specified in the
Incentive-Based Compensation award is attained, even if the payment or grant of the Incentive-Based Compensation occurs after the end of
that period.
3.
Incentive-Based Compensation
For purposes of this Policy, “Incentive-Based Compensation” means any compensation that is granted, earned or vested based
wholly or in part on the attainment of a Financial Reporting Measure (as defined below). A specific example of “Incentive-Based
Compensation” cited in the adopting release for final Rule 10D-1 (the “Adopting Release”) is bonuses paid from a “bonus pool,” the size of
which is determined based wholly or in part on satisfying a financial performance measure reporting goal.
For purposes of this Policy, “Financial Reporting Measures” are measures that are determined and presented in accordance with
the accounting principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from
such measures, regardless of whether such measures are presented within the Company’s financial statements or included in a filing with the
Securities and Exchange Commission. The Adopting Release provides examples of Financial Reporting Measures, including the following
GAAP or non-GAAP accounting-based metrics:
•
Unit price or total unitholder return
•
Revenues;
•
Net income;
•
Operating income;
•
Net assets or net asset value per unit;
•
EBITDA (i.e., Earnings before interest, taxes, depreciation and amortization), Adjusted EBITDA and any other non-GAAP
financial metrics used to determine Incentive-Based Compensation;
•
Funds from operations and adjusted funds from operations;
•
Liquidity measures (e.g., working capital, operating cash flow);
•
Return measures (e.g., return on invested capital, return on assets, return on capital employed);
•
Earnings measures (e.g., earnings per share); and
•
Tax basis income.
Based on the above definitions and examples, the Company has determined that compensation paid to the Covered Executives
under the Company’s Profit Sharing Plan on and after the Effective Date is subject to recovery by the Company under this Policy in the event
of an Accounting Restatement. In the event that the Company adopts a compensation plan that provides for Incentive-Based Compensation,
the compensation paid to the Covered Executives under such plan shall also be subject to this Policy.
Exhibit 97
Page 3 of NUMPAGES 5
4.
Erroneously Awarded Compensation: Amount Subject to Recovery
The amount to be recovered from a Covered Executive in the event of an Accounting Restatement shall equal the amount of
Incentive-Based Compensation received by the Covered Executive that exceeds the amount of Incentive-Based Compensation that otherwise
would have been received had it been determined based on the restated amounts, computed without regard to any taxes paid by the Covered
Executive on the erroneously awarded compensation and regardless of any fault of the Covered Executive for the accounting errors that give
rise to any Accounting Restatement.
In the case of recovery of compensation received by Covered Executives under the Profit Plan, any such recovery shall be made pro
rata among the Covered Executives based on the size of the bonus received by such Covered Executive. For example, if an Accounting
Restatement reduces the amount of the cash compensation pool under the Profit Plan in any fiscal year, but not below the aggregate amount
the Board exercised discretion to pay out as bonuses to Covered Executives (such reduction “Deficiency Amount”), then the Company shall
recover from each Covered Executive an amount equal to the Deficiency Amount multiplied by a fraction, the numerator of which is the
dollar amount of the bonus received by a Covered Executive in respect of such fiscal year under the Profit Plan, and the denominator of
which is the aggregate dollar amount of bonuses received by all employees, including the Covered Executives, in respect of such fiscal year
under the Profit Plan. For the avoidance of any doubt, the Deficiency Amount shall only be satisfied by bonuses received by Covered
Executives, and to the extent that the Deficiency Amount exceeds the amount of bonuses received by Covered Executives under the Profit
Plan in respect of any fiscal year, the bonuses received by other Company officers and employees will not be subject to recovery or
repayment under this Policy.
If the amount of erroneously awarded compensation is not subject to mathematical recalculation directly from the information in the
Accounting Restatement (as in the case of Incentive-Based Compensation based on unit price or total unitholder return), the General Partner
shall determine such amount based on a reasonable estimate of the effect of the Accounting Restatement on the applicable Financial
Reporting Measure, and the General Partner shall maintain documentation of any such estimate and provide such documentation to the
applicable securities exchange.
Notwithstanding the foregoing, the Company shall not be required to recover erroneously awarded Incentive-Based Compensation
from a Covered Executive to the extent that the General Partner determines that such recovery would be impracticable and either:
•
The direct expense paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered (determined by
a majority of the independent directors serving on the Board of Directors of the General Partner after making and documenting a
reasonable attempt to recover such erroneously awarded compensation, and providing documentation of such reasonable attempt
to recover to the applicable securities exchange); or
•
Full recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to
employees of the Company, to fail to meet the requirements of Section 401(a)(13) or Section 411(a) of the Internal Revenue Code
and regulations thereunder.
To the extent that this Policy otherwise would provide for recovery of Incentive-Based Compensation that the Company has
recovered from a Covered Executive pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (or pursuant to any other recovery
obligation), the amount already so recovered from such Covered Executive may be credited against the recovery otherwise required under
this Policy.
Exhibit 97
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5.
Method of Recovery
The General Partner will determine, in its discretion, the method or methods for recovering any erroneously awarded Incentive-
Based Compensation hereunder, which method(s) need not be applied on a consistent basis; provided in any case that any such method
provides for reasonably prompt recovery and otherwise complies with any requirements of the applicable securities exchange. Without
limiting the foregoing, the methods that the General Partner, in its discretion, may determine to use to recover erroneously awarded Incentive-
Based Compensation hereunder may include, by way of example, the forfeiture or repayment of Incentive-Based Compensation, the
forfeiture or repayment of time-based equity or cash incentive compensation awards, the forfeiture of benefits under a nonqualified deferred
compensation plan, and the offset of all or a portion of the amount of the erroneously awarded Incentive-Based Compensation against other
compensation payable to the Covered Executive, including any non-erroneously awarded Incentive-Based Compensation.
6.
No Indemnification or Insurance
The Company shall not indemnify nor insure any Covered Executive against the loss of any erroneously awarded Incentive-Based
Compensation.
7.
Administration
This Policy shall be administered by the Board of the General Partner. Except for determinations of whether recovery under this
Policy is impracticable (which determination must be made by a majority of the independent directors of the Board), the Board is authorized
to interpret and construe this Policy and to make all determinations necessary, appropriate or advisable for the administration of this Policy.
It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act and any
applicable rules or standards adopted by the Securities and Exchange Commission, the NYSE and any other national securities exchange on
which the Company's securities are listed.
8.
Effective Date
This Policy shall be effective as of the Effective Date and shall apply to Incentive-Based Compensation that is received by a
Covered Executive on or after that date.
9.
Amendment; Termination
The General Partner may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to
reflect the final regulations adopted by the Securities and Exchange Commission under Section 10D of the Exchange Act and to comply with
any final rules or standards adopted by the NYSE or any other national securities exchange on which the Company's securities are listed. The
General Partner may terminate this Policy at any time.
10. Policy Not Exclusive
The General Partner may require that any employment agreement, equity award agreement or similar agreement entered into on or
after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms
of this Policy. Any right of recovery under this Policy is in addition to, and not in lieu of, any other remedies or rights of recovery,
recoupment, forfeiture or offset that may be available to the Company pursuant to the terms of any other applicable Company policy in any
employment agreement, equity award agreement, or similar agreement and any other legal remedies available to the Company.
Exhibit 97
Page 5 of NUMPAGES 5
11. Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators
and other legal representatives.
12. Filings
The General Partner shall cause the Company to make any filings with, or submissions to, the Securities Exchange Commission, the
NYSE and any other national securities exchange that may be required pursuant to rules adopted pursuant to Section 10D of the Exchange
Act.