10-Q 1 sgu-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 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

Stamford, Connecticut

06902

(Address of principal executive office)

(Zip Code)

 

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

 

N/A

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

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Units

 

SGU

 

New York Stock Exchange

Common Unit Purchase Rights

 

N/A

 

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

Accelerated filer

 

 

 

 

Non- accelerated filer

Smaller reporting company

 

 

 

Emerging growth company

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

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

At April 30, 2024, the registrant had 35,230,492 Common Units outstanding.

 

 

 


 

STAR GROUP, L.P. AND SUBSIDIARIES

INDEX TO FORM 10-Q

 

 

Page

Part I Financial Information

 

 

Item 1 - Condensed Consolidated Financial Statements

 

3

Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and September 30, 2023

 

3

Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended March 31, 2024 and March 31, 2023

 

4

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and six months ended March 31, 2024 and March 31, 2023

 

5

Condensed Consolidated Statement of Partners’ Capital (unaudited) for the three and six months ended March 31, 2024 and March 31, 2023

 

6-7

Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended March 31, 2024 and March 31, 2023

 

8

Notes to Condensed Consolidated Financial Statements (unaudited)

 

9-21

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

 

22-39

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

 

40

Item 4 - Controls and Procedures

 

40

Part II Other Information:

 

41

Item 1 - Legal Proceedings

 

41

Item 1A - Risk Factors

 

41

Item 2 - Purchase of Equity Securities by Issuer

 

41

Item 3 - Defaults Upon Senior Securities

 

41

Item 4 - Mine Safety Disclosures

 

41

Item 5 - Other Information

 

41

Item 6 - Exhibits

 

42

Signatures

 

43

2


 

Part I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

 

September 30,

 

 

 

2024

 

 

2023

 

(in thousands)

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,063

 

 

$

45,191

 

Receivables, net of allowance of $8,896 and $8,375, respectively

 

 

198,280

 

 

 

114,079

 

Inventories

 

 

63,293

 

 

 

56,463

 

Fair asset value of derivative instruments

 

 

222

 

 

 

10,660

 

Weather hedge contract receivable

 

 

7,498

 

 

 

 

Prepaid expenses and other current assets

 

 

28,574

 

 

 

28,308

 

Total current assets

 

 

309,930

 

 

 

254,701

 

Property and equipment, net

 

 

106,141

 

 

 

105,404

 

Operating lease right-of-use assets

 

 

87,834

 

 

 

90,643

 

Goodwill

 

 

268,360

 

 

 

262,103

 

Intangibles, net

 

 

81,359

 

 

 

76,306

 

Restricted cash

 

 

250

 

 

 

250

 

Captive insurance collateral

 

 

72,811

 

 

 

70,717

 

Deferred charges and other assets, net

 

 

13,067

 

 

 

15,354

 

Total assets

 

$

939,752

 

 

$

875,478

 

LIABILITIES AND PARTNERS’ CAPITAL

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

37,597

 

 

$

35,609

 

Revolving credit facility borrowings

 

 

29,239

 

 

 

240

 

Fair liability value of derivative instruments

 

 

2,189

 

 

 

118

 

Current maturities of long-term debt

 

 

16,500

 

 

 

20,500

 

Current portion of operating lease liabilities

 

 

18,030

 

 

 

18,085

 

Accrued expenses and other current liabilities

 

 

147,796

 

 

 

115,606

 

Unearned service contract revenue

 

 

72,900

 

 

 

63,215

 

Customer credit balances

 

 

51,276

 

 

 

111,508

 

Total current liabilities

 

 

375,527

 

 

 

364,881

 

Long-term debt

 

 

119,189

 

 

 

127,327

 

Long-term operating lease liabilities

 

 

74,615

 

 

 

77,600

 

Deferred tax liabilities, net

 

 

23,207

 

 

 

25,771

 

Other long-term liabilities

 

 

16,079

 

 

 

16,175

 

Partners’ capital

 

 

 

 

 

 

Common unitholders

 

 

348,382

 

 

 

281,862

 

General partner

 

 

(4,544

)

 

 

(4,615

)

Accumulated other comprehensive loss, net of taxes

 

 

(12,703

)

 

 

(13,523

)

Total partners’ capital

 

 

331,135

 

 

 

263,724

 

Total liabilities and partners’ capital

 

$

939,752

 

 

$

875,478

 

See accompanying notes to condensed consolidated financial statements.

3


 

STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months
Ended March 31,

 

 

Six Months
Ended March 31,

 

(in thousands, except per unit data - unaudited)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Sales:

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

595,298

 

 

$

669,212

 

 

$

1,043,848

 

 

$

1,239,141

 

Installations and services

 

 

70,734

 

 

 

68,405

 

 

 

150,280

 

 

 

146,663

 

Total sales

 

 

666,032

 

 

 

737,617

 

 

 

1,194,128

 

 

 

1,385,804

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product

 

 

389,394

 

 

 

466,267

 

 

 

692,732

 

 

 

885,360

 

Cost of installations and services

 

 

70,592

 

 

 

68,311

 

 

 

145,699

 

 

 

144,854

 

(Increase) decrease in the fair value of derivative instruments

 

 

(11,752

)

 

 

3,022

 

 

 

7,278

 

 

 

20,658

 

Delivery and branch expenses

 

 

104,085

 

 

 

95,942

 

 

 

198,449

 

 

 

193,878

 

Depreciation and amortization expenses

 

 

7,748

 

 

 

7,626

 

 

 

16,134

 

 

 

15,463

 

General and administrative expenses

 

 

6,887

 

 

 

6,698

 

 

 

13,908

 

 

 

13,554

 

Finance charge income

 

 

(1,253

)

 

 

(1,764

)

 

 

(2,024

)

 

 

(3,083

)

Operating income

 

 

100,331

 

 

 

91,515

 

 

 

121,952

 

 

 

115,120

 

Interest expense, net

 

 

(3,838

)

 

 

(4,963

)

 

 

(7,056

)

 

 

(9,237

)

Amortization of debt issuance costs

 

 

(249

)

 

 

(258

)

 

 

(499

)

 

 

(587

)

Income before income taxes

 

 

96,244

 

 

 

86,294

 

 

 

114,397

 

 

 

105,296

 

Income tax expense

 

 

27,870

 

 

 

24,253

 

 

 

33,044

 

 

 

29,716

 

Net income

 

$

68,374

 

 

$

62,041

 

 

$

81,353

 

 

$

75,580

 

General Partner’s interest in net income

 

 

620

 

 

 

562

 

 

 

738

 

 

 

684

 

Limited Partners’ interest in net income

 

$

67,754

 

 

$

61,479

 

 

$

80,615

 

 

$

74,896

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

1.56

 

 

$

1.42

 

 

$

1.88

 

 

$

1.74

 

Weighted average number of Limited Partner units outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

35,549

 

 

 

35,653

 

 

 

35,571

 

 

 

35,786

 

 

(1) See Note 15 - Earnings Per Limited Partner Unit.

See accompanying notes to condensed consolidated financial statements.

4


 

STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

 

 

Three Months
Ended March 31,

 

 

Six Months
Ended March 31,

 

(in thousands - unaudited)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net income

 

$

68,374

 

 

$

62,041

 

 

$

81,353

 

 

$

75,580

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on pension plan obligation

 

 

319

 

 

 

382

 

 

 

638

 

 

 

762

 

Tax effect of unrealized gain on pension plan obligation

 

 

(85

)

 

 

(104

)

 

 

(160

)

 

 

(201

)

Unrealized gain on captive insurance collateral

 

 

263

 

 

 

775

 

 

 

1,195

 

 

 

1,130

 

Tax effect of unrealized gain on captive insurance collateral

 

 

(50

)

 

 

(164

)

 

 

(252

)

 

 

(238

)

Unrealized gain (loss) on interest rate hedges

 

 

221

 

 

 

(704

)

 

 

(821

)

 

 

(1,081

)

Tax effect of unrealized gain (loss) on interest rate hedges

 

 

(65

)

 

 

186

 

 

 

220

 

 

 

288

 

Total other comprehensive income

 

 

603

 

 

 

371

 

 

 

820

 

 

 

660

 

Total comprehensive income

 

$

68,977

 

 

$

62,412

 

 

$

82,173

 

 

$

76,240

 

See accompanying notes to condensed consolidated financial statements.

 

5


 

STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

 

 

 

Three Months Ended March 31, 2024

 

 

 

Number of Units

 

 

 

 

 

 

 

 

Accum. Other

 

 

Total

 

(in thousands - unaudited)

 

Common

 

 

General
Partner

 

 

Common

 

 

General
Partner

 

 

Comprehensive
Income (Loss)

 

 

Partners’
Capital

 

Balance as of December 31, 2023

 

 

35,590

 

 

 

326

 

 

$

288,789

 

 

$

(4,831

)

 

$

(13,306

)

 

$

270,652

 

Net income

 

 

 

 

 

 

 

 

67,754

 

 

 

620

 

 

 

 

 

 

68,374

 

Unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

319

 

 

 

319

 

Tax effect of unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(85

)

 

 

(85

)

Unrealized gain on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

263

 

 

 

263

 

Tax effect of unrealized gain on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

(50

)

Unrealized gain on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

221

 

 

 

221

 

Tax effect of unrealized gain on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65

)

 

 

(65

)

Distributions

 

 

 

 

 

 

 

 

(5,783

)

 

 

(333

)

 

 

 

 

 

(6,116

)

Retirement of units

 

 

(218

)

 

 

 

 

 

(2,378

)

 

 

 

 

 

 

 

 

(2,378

)

Balance as of March 31, 2024 (unaudited)

 

 

35,372

 

 

 

326

 

 

$

348,382

 

 

$

(4,544

)

 

$

(12,703

)

 

$

331,135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

Number of Units

 

 

 

 

 

 

 

 

Accum. Other

 

 

Total

 

(in thousands - unaudited)

 

Common

 

 

General
Partner

 

 

Common

 

 

General
Partner

 

 

Comprehensive
Income (Loss)

 

 

Partners’
Capital

 

Balance as of December 31, 2022

 

 

35,681

 

 

 

326

 

 

$

281,516

 

 

$

(3,826

)

 

$

(15,317

)

 

$

262,373

 

Net income

 

 

 

 

 

 

 

 

61,479

 

 

 

562

 

 

 

 

 

 

62,041

 

Unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

382

 

 

 

382

 

Tax effect of unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(104

)

 

 

(104

)

Unrealized gain on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

775

 

 

 

775

 

Tax effect of unrealized gain on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(164

)

 

 

(164

)

Unrealized loss on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(704

)

 

 

(704

)

Tax effect of unrealized loss on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

186

 

 

 

186

 

Distributions

 

 

 

 

 

 

 

 

(5,442

)

 

 

(289

)

 

 

 

 

 

(5,731

)

Retirement of units

 

 

(78

)

 

 

 

 

 

(879

)

 

 

 

 

 

 

 

 

(879

)

Balance as of March 31, 2023 (unaudited)

 

 

35,603

 

 

 

326

 

 

$

336,674

 

 

$

(3,553

)

 

$

(14,946

)

 

$

318,175

 

 

6


 

STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

 

 

 

Six Months Ended March 31, 2024

 

 

 

Number of Units

 

 

 

 

 

 

 

 

Accum. Other

 

 

Total

 

(in thousands - unaudited)

 

Common

 

 

General
Partner

 

 

Common

 

 

General
Partner

 

 

Comprehensive
Income (Loss)

 

 

Partners’
Capital

 

Balance as of September 30, 2023

 

 

35,603

 

 

 

326

 

 

$

281,862

 

 

$

(4,615

)

 

$

(13,523

)

 

$

263,724

 

Net income

 

 

 

 

 

 

 

 

80,615

 

 

 

738

 

 

 

 

 

 

81,353

 

Unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

638

 

 

 

638

 

Tax effect of unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(160

)

 

 

(160

)

Unrealized gain on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,195

 

 

 

1,195

 

Tax effect of unrealized gain on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(252

)

 

 

(252

)

Unrealized loss on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(821

)

 

 

(821

)

Tax effect of unrealized loss on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

220

 

 

 

220

 

Distributions

 

 

 

 

 

 

 

 

(11,567

)

 

 

(667

)

 

 

 

 

 

(12,234

)

Retirement of units

 

 

(231

)

 

 

 

 

 

(2,528

)

 

 

 

 

 

 

 

 

(2,528

)

Balance as of March 31, 2024 (unaudited)

 

 

35,372

 

 

 

326

 

 

$

348,382

 

 

$

(4,544

)

 

$

(12,703

)

 

$

331,135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended March 31, 2023

 

 

 

Number of Units

 

 

 

 

 

 

 

 

Accum. Other

 

 

Total

 

(in thousands - unaudited)

 

Common

 

 

General
Partner

 

 

Common

 

 

General
Partner

 

 

Comprehensive
Income (Loss)

 

 

Partners’
Capital

 

Balance as of September 30, 2022

 

 

36,092

 

 

 

326

 

 

$

277,177

 

 

$

(3,656

)

 

$

(15,606

)

 

$

257,915

 

Net income

 

 

 

 

 

 

 

 

74,896

 

 

 

684

 

 

 

 

 

 

75,580

 

Unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

762

 

 

 

762

 

Tax effect of unrealized gain on pension plan obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(201

)

 

 

(201

)

Unrealized gain on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,130

 

 

 

1,130

 

Tax effect of unrealized gain on captive insurance collateral

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(238

)

 

 

(238

)

Unrealized loss on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,081

)

 

 

(1,081

)

Tax effect of unrealized loss on interest rate hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

288

 

 

 

288

 

Distributions

 

 

 

 

 

 

 

 

(10,924

)

 

 

(581

)

 

 

 

 

 

(11,505

)

Retirement of units

 

 

(489

)

 

 

 

 

 

(4,475

)

 

 

 

 

 

 

 

 

(4,475

)

Balance as of March 31, 2023 (unaudited)

 

 

35,603

 

 

 

326

 

 

$

336,674

 

 

$

(3,553

)

 

$

(14,946

)

 

$

318,175

 

See accompanying notes to condensed consolidated financial statements.

 

7


 

STAR GROUP, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Six Months
Ended March 31,

 

(in thousands - unaudited)

 

2024

 

 

2023

 

Cash flows provided by (used in) operating activities:

 

 

 

 

 

 

Net income

 

$

81,353

 

 

$

75,580

 

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

 

 

 

 

 

 

(Increase) decrease in fair value of derivative instruments

 

 

7,278

 

 

 

20,658

 

Depreciation and amortization

 

 

16,633

 

 

 

16,050

 

Provision for losses on accounts receivable

 

 

3,672

 

 

 

4,768

 

Change in deferred taxes

 

 

(2,756

)

 

 

(12,379

)

Change in weather hedge contracts

 

 

(7,498

)

 

 

(12,500

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Increase in receivables

 

 

(87,709

)

 

 

(124,764

)

(Increase) decrease in inventories

 

 

(5,473

)

 

 

11,609

 

Decrease in other assets

 

 

9,708

 

 

 

14,199

 

Increase (decrease) in accounts payable

 

 

2,852

 

 

 

(7,516

)

Decrease in customer credit balances

 

 

(61,615

)

 

 

(41,768

)

Increase in other current and long-term liabilities

 

 

38,376

 

 

 

42,230

 

Net cash used in operating activities

 

 

(5,179

)

 

 

(13,833

)

Cash flows provided by (used in) investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(6,022

)

 

 

(5,182

)

Proceeds from sales of fixed assets

 

 

328

 

 

 

539

 

Proceeds from sale of certain assets

 

 

 

 

 

2,202

 

Purchase of investments

 

 

(946

)

 

 

(465

)

Acquisitions

 

 

(22,577

)

 

 

(1,193

)

Net cash used in investing activities

 

 

(29,217

)

 

 

(4,099

)

Cash flows provided by (used in) financing activities:

 

 

 

 

 

 

Revolving credit facility borrowings

 

 

79,596

 

 

 

125,601

 

Revolving credit facility repayments

 

 

(50,597

)

 

 

(75,941

)

Term loan repayments

 

 

(12,250

)

 

 

(8,250

)

Distributions

 

 

(12,234

)

 

 

(11,505

)

Unit repurchases

 

 

(2,528

)

 

 

(4,475

)

Customer retainage payments

 

 

(719

)

 

 

(33

)

Net cash provided by financing activities

 

 

1,268

 

 

 

25,397

 

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

 

 

(33,128

)

 

 

7,465

 

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

 

 

45,441

 

 

 

14,870

 

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

 

$

12,313

 

 

$

22,335

 

 

See accompanying notes to condensed consolidated financial statements.

8


 

STAR GROUP, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1) Organization

Star Group, L.P. (“Star,” the “Company,” “we,” “us,” or “our”) is a full service provider specializing in the sale of home heating and air conditioning products and services to residential and commercial home heating oil and propane customers. The Company has one reportable segment for accounting purposes. We also sell diesel fuel, gasoline and home heating oil on a delivery only basis. We believe we are the nation’s largest retail distributor of home heating oil based upon sales volume.

The Company is organized as follows:

Star is a limited partnership, which at March 31, 2024, had outstanding 35.4 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”). Although Star is a partnership, it is taxed as a corporation and its distributions to unitholders are treated as taxable dividends.
Star owns 100% of Star Acquisitions, Inc. (“SA”), a Minnesota corporation that owns 100% of Petro Holdings, Inc. (“Petro”). SA and its subsidiaries are subject to Federal and state corporate income taxes. Star’s operations are conducted through Petro and its subsidiaries. Petro is primarily a Northeast and Mid-Atlantic U.S. region retail distributor of home heating oil and propane that at March 31, 2024 served approximately 403,700 full service residential and commercial home heating oil and propane customers and 60,800 customers on a delivery only basis. We also sell gasoline and diesel fuel to approximately 26,700 customers. We install, maintain, and repair heating and air conditioning equipment and to a lesser extent provide these services outside our heating oil and propane customer base including approximately 20,700 service contracts for natural gas and other heating systems.
Petroleum Heat and Power Co., Inc. (“PH&P”) is a wholly owned subsidiary of Star. PH&P is the borrower and Star is the guarantor of the sixth amended and restated credit agreement’s $165 million five-year senior secured term loan and the $400 million ($550 million during the heating season of December through April of each year) revolving credit facility, both due July 6, 2027. (See Note 11—Long-Term Debt and Bank Facility Borrowings).

 

2) Summary of Significant Accounting Policies

 

Basis of Presentation

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

The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair statement of financial condition and results for the interim periods. Due to the seasonal nature of the Company’s business, the results of operations and cash flows for the six-month period ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year.

These interim financial statements of the Company have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023.

Comprehensive Income

Comprehensive income is comprised of Net income and Other comprehensive income. Other comprehensive income consists of the unrealized gain on amortization on the Company’s pension plan obligation for its two frozen defined benefit pension plans, unrealized gain on available-for-sale investments, unrealized gain (loss) on interest rate hedges and the corresponding tax effects.

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Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At March 31, 2024, the $12.3 million of cash, cash equivalents, and restricted cash on the Condensed Consolidated Statements of Cash Flows is composed of $12.1 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 Condensed Consolidated Statements of Cash Flows is composed 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.

Fair Value Valuation Approach

The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

Captive Insurance Collateral

The captive insurance collateral is held by our captive insurance company in an irrevocable trust as collateral for certain workers’ compensation and automobile liability claims. The collateral is required by a third party insurance carrier that insures per claim amounts above a set deductible. If we did not deposit cash into the trust, the third party carrier would require that we issue an equal amount of letters of credit, which would reduce our availability under the sixth amended and restated credit agreement. Due to the expected timing of claim payments, the nature of the collateral agreement with the carrier, and our captive insurance company’s source of other operating cash, the collateral is not expected to be used to pay obligations within the next twelve months.

Unrealized gains and losses, net of related income taxes, are reported as accumulated other comprehensive income (loss), except for losses from impairments which are determined to be other-than-temporary. Realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are included in the determination of net income and are included in Interest expense, net, at which time the average cost basis of these securities are adjusted to fair value.

Weather Hedge Contract

To partially mitigate the adverse effect of warm weather on cash flows, the Company has used weather hedge contracts for a number of years. Weather hedge contracts are recorded in accordance with the intrinsic value method defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-45-15 Derivatives and Hedging, Weather Derivatives (EITF 99-2). The premium paid is included in the caption “Prepaid expenses and other current assets” in the accompanying balance sheets and amortized over the life of the contract, with the intrinsic value method applied at each interim period.

The Company entered into weather hedge contracts for fiscal years 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 at March 31, 2024 and March 31, 2023, the Company reduced delivery and branch expenses and recorded a receivable 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.

 

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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.

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

As of March 31, 2024, we had $0.3 million and $15.8 million balances included in the captions “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, on our Condensed Consolidated Balance Sheet representing the remaining balance of the NETTI Fund withdrawal liability. As of September 30, 2023, we had $0.3 million and $16.0 million balances reflected in these categories 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 March 31, 2024 and September 30, 2023 was $18.9 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.

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 ASU effective October 1, 2023. The Company's adoption of the ASU did not have an impact on the Company's condensed 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 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 has not determined the timing of adoption and 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.

 

3) Revenue Recognition

The following disaggregates our revenue by major sources for the three and six months ended March 31, 2024 and March 31, 2023:

 

 

Three Months
Ended March 31,

 

 

Six Months
Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Petroleum Products: