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Form 10-Q STAR GAS PARTNERS LP For: Mar 31

May 4, 2016 8:10 AM
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended March 31, 2016

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 GAS PARTNERS, L.P.

(Exact name of registrants as specified in its charters)

 

 

 

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)  

(203) 328-7310

(Registrant’s telephone number, including area code)

 

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

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non- accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

At April 30, 2016, the registrant had 57,187,832 Common Units outstanding.

 

 

 


Table of Contents

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

INDEX TO FORM 10-Q

 

     Page  

Part I Financial Information

  

Item 1 - Condensed Consolidated Financial Statements

  

Condensed Consolidated Balance Sheets as of March  31, 2016 (unaudited) and September 30, 2015

     3   

Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended March 31, 2016 and March 31, 2015

     4   

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended March 31, 2016 and March 31, 2015

     5   

Condensed Consolidated Statement of Partners’ Capital (unaudited) for the six months ended March 31, 2016

     6   

Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended March 31, 2016 and March 31, 2015

     7   

Notes to Condensed Consolidated Financial Statements (unaudited)

     8-18   

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

     19-39   

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

     39   

Item 4 - Controls and Procedures

     40   

Part II Other Information:

  

Item 1 - Legal Proceedings

     41   

Item 1A - Risk Factors

     41   

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

     41   

Item 6 - Exhibits

     41   

Signatures

     42   

 

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Table of Contents

Part I. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     March 31,     September 30,  

(in thousands)

   2016     2015  
     (unaudited)        

ASSETS

  

 

Current assets

  

 

Cash and cash equivalents

   $ 146,614      $ 100,508   

Receivables, net of allowance of $6,025 and $6,713, respectively

     126,865        89,230   

Inventories

     45,560        55,671   

Fair asset value of derivative instruments

     1        935   

Weather hedge contract receivable

     12,500        —     

Current deferred tax assets, net

     37,460        37,832   

Prepaid expenses and other current assets

     27,171        25,135   
  

 

 

   

 

 

 

Total current assets

     396,171        309,311   
  

 

 

   

 

 

 

Property and equipment, net

     68,855        68,123   

Goodwill

     212,676        211,045   

Intangibles, net

     103,487        107,317   

Deferred charges and other assets, net

     12,832        11,236   
  

 

 

   

 

 

 

Total assets

   $ 794,021      $ 707,032   
  

 

 

   

 

 

 

LIABILITIES AND PARTNERS’ CAPITAL

    

Current liabilities

    

Accounts payable

   $ 23,301      $ 25,322   

Fair liability value of derivative instruments

     7,989        12,819   

Current maturities of long-term debt

     10,000        10,000   

Accrued expenses and other current liabilities

     149,816        107,745   

Unearned service contract revenue

     50,353        44,419   

Customer credit balances

     63,154        78,207   
  

 

 

   

 

 

 

Total current liabilities

     304,613        278,512   
  

 

 

   

 

 

 

Long-term debt

     87,500        90,000   

Long-term deferred tax liabilities, net

     29,982        21,524   

Other long-term liabilities

     25,821        27,110   

Partners’ capital

    

Common unitholders

     368,009        312,713   

General partner

     (121     (283

Accumulated other comprehensive loss, net of taxes

     (21,783     (22,544
  

 

 

   

 

 

 

Total partners’ capital

     346,105        289,886   
  

 

 

   

 

 

 

Total liabilities and partners’ capital

   $ 794,021      $ 707,032   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Three Months Ended     Six Months Ended  
     March 31,     March 31,  

(in thousands, except per unit data - unaudited)

   2016     2015     2016     2015  

Sales:

        

Product

   $ 404,340      $ 706,004      $ 657,290      $ 1,141,016   

Installations and services

     57,685        56,305        123,790        120,510   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total sales

     462,025        762,309        781,080        1,261,526   

Cost and expenses:

        

Cost of product

     219,864        462,815        369,966        772,064   

Cost of installations and services

     58,858        60,362        121,770        121,045   

(Increase) decrease in the fair value of derivative instruments

     (14,324     (12,631     (8,788     (4,341

Delivery and branch expenses

     90,509        106,107        154,703        184,941   

Depreciation and amortization expenses

     6,725        6,217        13,491        12,375   

General and administrative expenses

     5,088        6,861        11,508        12,917   

Finance charge income

     (1,014     (1,517     (1,535     (2,343
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     96,319        134,095        119,965        164,868   

Interest expense, net

     (1,891     (3,816     (3,750     (7,276

Amortization of debt issuance costs

     (315     (403     (627     (803
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     94,113        129,876        115,588        156,789   

Income tax expense

     38,904        54,189        48,321        65,548   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 55,209      $ 75,687      $ 67,267      $ 91,241   

General Partner’s interest in net income

     313        428        381        516   
  

 

 

   

 

 

   

 

 

   

 

 

 

Limited Partners’ interest in net income

   $ 54,896      $ 75,259      $ 66,886      $ 90,725   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 0.79      $ 1.08      $ 0.98      $ 1.31   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of Limited Partner units outstanding:

        

Basic and Diluted

     57,242        57,282        57,262        57,288   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) See Note 13 Earnings Per Limited Partner Unit.

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

     Three Months Ended
March 31,
    Six Months Ended
March 31,
 

(in thousands - unaudited)

   2016     2015     2016     2015  

Net income

   $ 55,209      $ 75,687      $ 67,267      $ 91,241   

Other comprehensive income:

        

Unrealized gain on pension plan obligation (1)

     648        558        1,296        1,114   

Tax effect of unrealized gain on pension plan

     (268     (229     (535     (459
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

     380        329        761        655   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

   $ 55,589      $ 76,016      $ 68,028      $ 91,896   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) This item is included in the computation of net periodic pension cost.

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

 

     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, 2015

     57,282        326       $ 312,713      $ (283   $ (22,544   $ 289,886   

Net income

     —          —           66,886        381        —          67,267   

Unrealized gain on pension plan obligation

     —          —           —          —          1,296        1,296   

Tax effect of unrealized gain on pension plan

     —          —           —          —          (535     (535

Distributions

     —          —           (10,883     (219     —          (11,102

Retirement of units (1)

     (95     —           (707     —          —          (707
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of March 31, 2016 (unaudited)

     57,187        326       $ 368,009      $ (121   $ (21,783   $ 346,105   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) See Note 3 - Common Unit Repurchase and Retirement.

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Six Months Ended  
     March 31,  

(in thousands - unaudited)

   2016     2015  

Cash flows provided by (used in) operating activities:

  

 

Net income

   $ 67,267      $ 91,241   

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

    

(Increase) decrease in fair value of derivative instruments

     (8,788     (4,341

Depreciation and amortization

     14,118        13,178   

Provision for losses on accounts receivable

     (448     3,567   

Change in deferred taxes

     8,295        7,776   

Change in weather hedge contract receivable

     (12,500     —     

Changes in operating assets and liabilities:

    

Increase in receivables

     (37,778     (145,609

Decrease in inventories

     10,243        8,581   

(Increase) decrease in other assets

     (1,889     192   

Increase (decrease) in accounts payable

     (1,274     5,624   

Decrease in customer credit balances

     (15,217     (42,309

Increase in other current and long-term liabilities

     52,206        65,700   
  

 

 

   

 

 

 

Net cash provided by operating activities

     74,235        3,600   
  

 

 

   

 

 

 

Cash flows provided by (used in) investing activities:

    

Capital expenditures

     (5,482     (3,674

Proceeds from sales of fixed assets

     254        157   

Acquisitions

     (7,615     (1,069
  

 

 

   

 

 

 

Net cash used in investing activities

     (12,843     (4,586
  

 

 

   

 

 

 

Cash flows provided by (used in) financing activities:

    

Revolving credit facility borrowings

     —          12,296   

Revolving credit facility repayments

     —          (12,296

Repayment of term loan

     (2,500     —     

Distributions

     (11,102     (10,195

Unit repurchases

     (707     (691

Customer retainage payments

     (680     —     

Payments of debt issuance costs

     (297     —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (15,286     (10,886
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     46,106        (11,872

Cash and cash equivalents at beginning of period

     100,508        48,999   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 146,614      $ 37,127   
  

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1) Partnership Organization

Star Gas Partners, L.P. (“Star Gas Partners,” the “Partnership,” “we,” “us,” or “our”) is a full service provider specializing in the sale of home heating products and services to residential and commercial customers. The Partnership also services and sells heating and air conditioning equipment to its home heating oil and propane customers and to a lesser extent, provides these offerings to customers outside of our home heating oil and propane customer base. In certain of our marketing areas, we provide home security and plumbing services primarily to our home heating oil and propane customer base. We also sell diesel fuel, gasoline and home heating oil on a delivery only basis. These products and services are offered through our home heating oil and propane locations. The Partnership has one reportable segment for accounting purposes. 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 Partnership is organized as follows:

 

    The Partnership is a master limited partnership, which as of March 31, 2016, had outstanding 57.2 million Common Units (NYSE: “SGU”), representing 99.43% limited partner interest in Star Gas Partners, and 0.3 million general partner units, representing 0.57% general partner interest in Star Gas Partners. The general partner of the Partnership 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”).

 

    The Partnership owns 100% of Star Acquisitions, Inc., a Minnesota corporation (“SA”), that owns 100% of Petro Holdings, Inc., a Minnesota corporation (“Petro”). SA and its subsidiaries are subject to Federal and state corporate income taxes. The Partnership’s operations are conducted through Petro and its subsidiaries. Petro is primarily a Northeast, Central and Southeast region retail distributor of home heating oil and propane that as of March 31, 2016, served approximately 452,000 full-service residential and commercial home heating oil and propane customers. Petro also sold diesel fuel, gasoline and home heating oil to approximately 79,000 customers on a delivery only basis. In addition, Petro installed, maintained, and repaired heating and air conditioning equipment for its customers and provided ancillary home services, including home security and plumbing, to approximately 26,000 customers.

 

    Petroleum Heat and Power Co., Inc., a Minnesota corporation (“PH&P”) is a 100% owned subsidiary of the Partnership. PH&P is the borrower and the Partnership is the guarantor of the third amended and restated credit agreement’s five-year senior secured term loan and the $300 million ($450 million during the heating season of December through April of each year) revolving credit facility, both due July 30, 2020 (See Note 9—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 Gas Partners and its subsidiaries. All material inter-company 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 Partnership’s business, the results of operations and cash flows for the six month period ended March 31, 2016, and March 31, 2015, are not necessarily indicative of the results to be expected for the full year.

These interim financial statements of the Partnership 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 and should be read in conjunction with the financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended September 30, 2015.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of the unrealized gain (loss) amortization on the Partnership’s pension plan obligation for its two frozen defined benefit pension plans and the corresponding tax effect.

 

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Table of Contents

Weather Hedge Contract

To partially mitigate the adverse effect of warm weather on cash flows, the Partnership 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. The premium paid is included in the caption Prepaid Expenses and Other Current Assets in the accompanying balance sheets and amortized over the life of the contract, with the intrinsic value method applied at each interim period.

For fiscal years 2016 and 2017 the Partnership has a weather hedge contract with Swiss Re under which the Partnership is entitled to receive a payment of $35,000 per heating degree-day shortfall, when the accumulated number of heating degree-days in the entire hedge period is less than approximately 92.5% of the ten year average, the Payment Threshold as defined in the contract. The hedge covers the five month period from November 1, through March 31, taken as a whole, and has a maximum payout of $12.5 million for each respective fiscal year. The amount due to the Partnership at March 31, 2016 is $12.5 million based on the degree-day shortfall experienced during the most recent five month hedge period. In April 2016, the Partnership received $12.5 million from Swiss Re.

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

As of March 31, 2016 we had $0.1 million and $17.6 million 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 withdrawal liability. Based on the borrowing rates currently available to the Partnership for long-term financing of a similar maturity, the fair value of the NETTI withdrawal liability as of March 31, 2016 was $17.1 million. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace the latest revenue recognition guidance in GAAP when it becomes effective. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2019, with early adoption permitted beginning in the first quarter of fiscal 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Partnership is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The Partnership has not yet selected a transition method nor has it determined the timing of adoption.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. The update requires retrospective application and represents a change in accounting principle. The update is effective for our annual reporting period beginning in the first quarter of fiscal 2017, with early adoption permitted. The impact of ASU No. 2015-03 will be limited to the presentation of debt issuance cost on our balance sheet.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. The update changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2018, with early adoption permitted. The Partnership does not expect ASU No. 2015-11 to have a material impact on its consolidated financial statements and related disclosures.

In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which requires an acquiring entity to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquiring entity is required to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, the acquiring entity is to present separately on the face of its income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods as if the adjustment to the provisional amounts had been recognized as of the acquisition date. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2017. The Partnership does not expect ASU No. 2015-16 to have a material impact on its consolidated financial statements and related disclosures.

 

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In November 2015, FASB issued ASU No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes, which eliminates the requirement for companies to present deferred tax assets and liabilities as current and non-current in a classified balance sheet. Instead, companies will be required to classify all deferred tax assets and liabilities as non-current. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2018, with early adoption permitted. The standard permits the use of either the prospective or retrospective transition method. The Partnership is evaluating the effect that ASU No. 2015-17 will have on its consolidated financial statements and related disclosures. The Partnership has not yet selected a transition method nor has it determined the timing of adoption.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The update requires all leases with a term greater than twelve months to be recognized on the balance sheet through a right-of-use asset and a lease liability, and the disclosure of key information pertaining to leasing arrangements. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2020, with early adoption permitted. The Partnership is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures. The Partnership has not yet selected a transition method nor has it determined the timing of adoption.

3) Common Unit Repurchase and Retirement

In July 2012, the Board authorized the repurchase of up to 3.0 million of the Partnership’s Common Units (“Plan III”). In July 2013, the Board authorized the repurchase of an additional 1.9 million Common Units under Plan III. The authorized Common Unit repurchases may be made from time to time in the open market, in privately negotiated transactions or in such other manner deemed appropriate by management. There is no guarantee of the exact number of units that will be purchased under the program and the Partnership may discontinue purchases at any time. The program does not have a time limit. The Board may also approve additional purchases of units from time to time in private transactions. The Partnership’s repurchase activities take into account SEC safe harbor rules and guidance for issuer repurchases. All of the Common Units purchased in the repurchase program will be retired.

Under the Partnership’s third amended and restated credit agreement dated July 30, 2015, in order to repurchase Common Units we must maintain Availability (as defined in the amended and restated credit agreement) of $45 million, 15.0% of the facility size of $300 million (assuming the non-seasonal aggregate commitment is in effect) on a historical pro forma and forward-looking basis, and a fixed charge coverage ratio of not less than 1.15 measured as of the date of repurchase. The Partnership was in compliance with this covenant for all unit repurchases made during the six months ended March 31, 2016.

The following table shows repurchases under Plan III.

 

(in thousands, except per unit amounts)

Period

   Total Number of
Units Purchased

(a)
    Average Price
Paid per Unit

(b)
    Maximum Number
of Units that May
Yet Be Purchased
 

Plan III - Number of units authorized

         4,894   

Private transaction - Number of units authorized

         1,150   
      

 

 

 
         6,044   
  

 

 

   

 

 

   

Plan III - Fiscal years 2012 to 2015 total (c)

     3,742      $ 4.72        2,302   
  

 

 

   

 

 

   

Plan III - First quarter fiscal year 2016 total

     3      $ 7.02        2,299   
  

 

 

   

 

 

   

Plan III - January 2016

     —        $ —          2,299   

Plan III - February 2016

     60      $ 7.47        2,239   

Plan III - March 2016

     32      $ 7.53        2,207   
  

 

 

   

 

 

   

Plan III - Second quarter fiscal year 2016 total

     92      $ 7.49        2,207   
  

 

 

   

 

 

   

Plan III - Six months fiscal year 2016 total

     95      $ 7.48        2,207   
  

 

 

   

 

 

   

 

(a) Units were repurchased as part of a publicly announced program, except as noted in a private transaction.
(b) Amounts include repurchase costs.
(c) Includes 1.4 million common units acquired in a private transaction.

 

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4) Derivatives and Hedging—Disclosures and Fair Value Measurements

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 Partnership 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. The Partnership has elected not to designate its 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 March 31, 2016, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers, the Partnership held the following derivative instruments that settle in future months to match anticipated sales: 5.4 million gallons of swap contracts, 3.4 million gallons of call options, 3.5 million gallons of put options, and 58.7 million net gallons of synthetic call options. To hedge the inter-month differentials for its price-protected customers, its physical inventory on hand and inventory in transit, the Partnership, as of March 31, 2016, had 0.7 million gallons of long swap contracts, 34.0 million gallons of long future contracts, and 53.1 million gallons of short future contracts that settle in future months. In addition to the previously described hedging instruments, to lock-in the differential between high sulfur home heating oil and ultra low sulfur diesel, the Partnership as of March 31, 2016, had 2.1 million gallons of spread contracts (simultaneous long and short positions). To hedge its internal fuel usage and other related activities for fiscal 2016, the Partnership, as of March 31, 2016, had 4.6 million gallons of swap contracts that settle in future months.

As of March 31, 2015, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers, the Partnership held the following derivative instruments that settle in future months to match anticipated sales: 6.3 million gallons of swap contracts, 4.1 million gallons of call options, 3.1 million gallons of put options, and 54.7 million net gallons of synthetic call options. To hedge the inter-month differentials for its price-protected customers, its physical inventory on hand and inventory in transit, the Partnership, as of March 31, 2015, had 34.1 million gallons of long future contracts, and 54.7 million gallons of short future contracts that settle in future months. To hedge its internal fuel usage and other related activities for fiscal 2015, the Partnership, as of March 31, 2015, had 3.2 million gallons of swap contracts that settle in future months.

The Partnership’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., Munich Re Trading LLC, Regions Financial Corporation, Societe Generale, and Wells Fargo Bank, N.A. The Partnership 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 Partnership generally does not receive cash collateral from its counterparties and does not restrict the use of cash collateral it maintains at counterparties. At March 31, 2016, the aggregate cash posted as collateral in the normal course of business at counterparties was $3.4 million ($3.4 million recorded in prepaid expenses and other current assets). Positions with counterparties who are also parties to our credit agreement are collateralized under that facility. As of March 31, 2016, $7.9 million of hedge positions and payable amounts were secured under the credit facility.

FASB ASC 820-10 Fair Value Measurements and Disclosures, established a three-tier fair value hierarchy, which classified the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Partnership’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 Partnership’s Level 2 derivative assets and liabilities represent the fair value of commodity 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 Partnership 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 Partnership. The Partnership’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 Partnership are based on a combination of the NYMEX published market prices and other inputs, including such factors as present value, volatility and duration.

 

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The Partnership had no assets or liabilities that are measured at fair value on a nonrecurring basis subsequent to their initial recognition. The Partnership’s 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 March 31, 2016

 

Commodity contracts

 

Fair asset and fair liability value of derivative instruments

  $ 20,180      $ 2,817      $ 17,363   

Commodity contracts

 

Long-term derivative assets included in the deferred charges and other assets, net, and in the other long-term liabilities balances

    3,608        1,354        2,254   
   

 

 

   

 

 

   

 

 

 

Commodity contract assets at March 31, 2016

  $ 23,788      $ 4,171      $ 19,617   
   

 

 

   

 

 

   

 

 

 

Liability Derivatives at March 31, 2016

 

Commodity contracts

 

Fair liability and fair asset value of derivative instruments

  $ (28,168   $ (5,176   $ (22,992

Commodity contracts

 

Cash collateral

    —          —          —     

Commodity contracts

 

Long-term derivative liabilities included in the other long-term liabilities, and the deferred charges and other assets, net, balances

    (2,791     (635     (2,156
   

 

 

   

 

 

   

 

 

 

Commodity contract liabilities at March 31, 2016

  $ (30,959   $ (5,811   $ (25,148
   

 

 

   

 

 

   

 

 

 

Asset Derivatives at September 30, 2015

 

Commodity contracts

 

Fair asset and fair liability value of derivative instruments

  $ 26,628      $ 930      $ 25,698   

Commodity contracts

 

Long-term derivative assets included in the other long-term liabilities balance

    4,975        2,017        2,958   
   

 

 

   

 

 

   

 

 

 

Commodity contract assets at September 30, 2015

  $ 31,603      $ 2,947      $ 28,656   
   

 

 

   

 

 

   

 

 

 

Liability Derivatives at September 30, 2015

 

Commodity contracts

 

Fair liability and fair asset value of derivative instruments

  $ (41,270   $ —        $ (41,270

Commodity contracts

 

Cash collateral

    2,758        2,758        —     

Commodity contracts

 

Long-term derivative liabilities included in the other long-term liabilities balance

    (5,977     (2,038     (3,939
   

 

 

   

 

 

   

 

 

 

Commodity contract liabilities at September 30, 2015

  $ (44,489   $ 720      $ (45,209
   

 

 

   

 

 

   

 

 

 

 

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The Partnership’s 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
 

Fair asset value of derivative instruments

  $ 342      $ (341   $ 1      $ —        $ —        $ 1   

Long-term derivative assets included in deferred charges and other assets, net

  $ 2,706      $ (1,644   $ 1,062      $ —        $ —        $ 1,062   

Fair liability value of derivative instruments

    19,838        (27,827     (7,989     —          —          (7,989

Long-term derivative liabilities included in other long-term liabilities, net

    902        (1,147     (245         (245
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total at March 31, 2016

  $ 23,788      $ (30,959   $ (7,171   $ —        $ —        $ (7,171
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair asset value of derivative instruments

  $ 935      $ —        $ 935      $ —        $ —        $ 935   

Fair liability value of derivative instruments

    25,693        (38,512     (12,819     —          —          (12,819

Long-term derivative liabilities included in other long-term liabilities, net

    4,975        (5,977     (1,002         (1,002
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total at September 30, 2015

  $ 31,603      $ (44,489   $ (12,886   $ —        $ —        $ (12,886
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(In thousands)                            

The Effect of Derivative Instruments on the Statement of Operations

 
        Amount of (Gain) or Loss Recognized  

Derivatives Not

Designated as Hedging

Instruments Under
FASB ASC 815-10

 

Location of (Gain) or Loss

Recognized in Income on Derivative

  Three Months
Ended
March 31, 2016
    Three Months
Ended
March 31, 2015
    Six Months
Ended
March 31, 2016
    Six Months
Ended
March 31, 2015
 

Closed Positions

         

Commodity contracts

  Cost of product (a)   $ 12,234      $ 17,322      $ 8,801      $ 10,517   

Commodity contracts

  Cost of installations and service (a)   $ 550      $ 859      $ 776      $ 1,345   

Commodity contracts

  Delivery and branch expenses (a)   $ 565      $ 991      $ 879      $ 1,465   

Closed Positions

         

Commodity contracts

  (Increase) / decrease in the fair value of derivative instruments   $ (14,324   $ (12,631   $ (8,788   $ (4,341

 

(a) Represents realized closed positions and includes the cost of options as they expire.

 

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5) Inventories

The Partnership’s product inventories are stated at the lower of cost or market computed on the weighted average cost method. All other inventories, representing parts and equipment are stated at the lower of cost or market using the FIFO method. The components of inventory were as follows (in thousands):

 

     March 31, 2016      September 30, 2015  

Product

   $ 25,271       $ 35,599   

Parts and equipment

     20,289         20,072   
  

 

 

    

 

 

 

Total inventory

   $ 45,560       $ 55,671   
  

 

 

    

 

 

 

6) 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 (in thousands):

 

     March 31, 2016      September 30, 2015  

Property and equipment

   $ 177,879       $ 179,631   

Less: accumulated depreciation

     109,024         111,508   
  

 

 

    

 

 

 

Property and equipment, net

   $ 68,855       $ 68,123   
  

 

 

    

 

 

 

7) Business Combination

During fiscal 2016, the Partnership acquired a motor fuel dealer and a propane dealer for an aggregate purchase price of approximately $7.6 million. The aggregate purchase price was allocated $3.8 million to intangible assets, $1.6 million to goodwill, $2.1 million to fixed assets and $0.1 million to working capital. The acquired companies’ operating results are included in the Partnership’s consolidated financial statements starting on their respective acquisition date, and are not material to the Partnership’s financial condition, results of operations, or cash flows.

8) Goodwill and Intangibles, net

Goodwill

A summary of changes in the Partnership’s goodwill is as follows (in thousands):

 

Balance as of September 30, 2015

   $  211,045   

Fiscal year 2016 business combination

     1,631   
  

 

 

 

Balance as of March 31, 2016

   $ 212,676   
  

 

 

 

Intangibles, net

The gross carrying amount and accumulated amortization of intangible assets subject to amortization are as follows (in thousands):

 

     March 31, 2016      September 30, 2015  
     Gross                    Gross                
     Carrying      Accum.             Carrying      Accum.         
     Amount      Amortization      Net      Amount      Amortization      Net  

Customer lists

   $ 325,594       $ 243,365       $ 82,229       $ 322,027       $ 236,438       $ 85,589   

Trade names and other intangibles

     26,998         5,740         21,258         26,774         5,046         21,728   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 352,592       $ 249,105       $ 103,487       $ 348,801       $ 241,484       $ 107,317   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Amortization expense for intangible assets was $7.6 million for the six months ended March 31, 2016, compared to $6.7 million for the six months ended March 31, 2015.

 

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9) Long-Term Debt and Bank Facility Borrowings

The Partnership’s debt is as follows (in thousands):

 

     March 31,      September 30,  
     2016      2015  
     Carrying             Carrying         
     Amount      Fair Value (a)      Amount      Fair Value (a)  

Revolving Credit Facility Borrowings

   $ —         $ —         $ —         $ —     

Senior Secured Term Loan

     97,500         97,500         100,000         100,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt

   $ 97,500       $ 97,500       $ 100,000       $ 100,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term portion of debt

   $ 10,000       $ 10,000       $ 10,000       $ 10,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term portion of debt

   $ 87,500       $ 87,500       $ 90,000       $ 90,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) The face amount of the Partnership’s variable rate long-term debt approximates fair value.

On July 30, 2015, the Partnership entered into a third amended and restated asset based credit agreement with a bank syndicate comprised of thirteen participants, which enables the Partnership to borrow up to $300 million ($450 million during the heating season of December through April of each year) on a revolving credit facility for working capital purposes (subject to certain borrowing base limitations and coverage ratios), provides for a $100 million five-year senior secured term loan (the “$100 million Term Loan”), allows for the issuance of up to $100 million in letters of credit, and has a maturity date of July 30, 2020.

The Partnership can increase the revolving credit facility size by $100 million without the consent of the bank group. However, the bank group is not obligated to fund the $100 million increase. If the bank group elects not to fund the increase, the Partnership can add additional lenders to the group, with the consent of the Agent, which shall not be unreasonably withheld. Obligations under the third amended and restated credit facility are guaranteed by the Partnership and its subsidiaries and are secured by liens on substantially all of the Partnership’s assets including accounts receivable, inventory, general intangibles, real property, fixtures and equipment.

All amounts outstanding under the third amended and restated revolving credit facility become due and payable on the facility termination date of July 30, 2020. The $100 million Term Loan, whose balance at March 31, 2016, was $97.5 million, is repayable in quarterly payments of $2.5 million, plus an annual payment equal to 25% of the annual Excess Cash Flow as defined in the agreement (an amount not to exceed $15 million annually), less certain voluntary prepayments made during the year, with final payment at maturity.

The interest rate on the third amended and restated revolving credit facility and the term loan is based on a margin over LIBOR or a base rate. At March 31, 2016, the effective interest rate on the term loan was approximately 3.58%.

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 third amended and restated credit agreement requires the Partnership to meet certain financial covenants, including a fixed charge coverage ratio (as defined in the credit agreement) of not less than 1.1 as long as the $100 million Term Loan is outstanding or revolving credit facility availability is less than 12.5% of the facility size. In addition, as long as the $100 million Term Loan is outstanding, a senior secured leverage ratio at any time cannot be more than 3.0 as calculated during the quarters ending June or September, and at any time no more than 4.5 as calculated during the quarters ending December or March.

Certain restrictions are also imposed by the agreement, including restrictions on the Partnership’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 March 31, 2016, $97.5 million of the term loan was outstanding, no amount was outstanding under the revolving credit facility, $7.9 million of hedge positions were secured under the credit agreement, and $49.6 million of letters of credit were issued and outstanding. At September 30, 2015, $100.0 million of the term loan was outstanding, no amount was outstanding under the revolving credit facility, $15.3 million of hedge positions were secured under the credit agreement, and $54.8 million of letters of credit were issued and outstanding.

At March 31, 2016, availability was $242.5 million, and the Partnership was in compliance with the fixed charge coverage ratio and the senior secured leverage ratio. At September 30, 2015, availability was $176.0 million, and the Partnership was in compliance with the fixed charge coverage ratio and the senior secured leverage ratio.

 

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Table of Contents

10) Income Taxes

Since Star Gas Partners is organized as a master limited partnership, it is not subject to tax at its entity level for Federal and state income tax purposes. However, Star Gas Partners’ income is derived from its corporate subsidiaries, and these entities do incur Federal and state income taxes relating to their respective corporate subsidiaries, which are reflected in these financial statements. For the corporate subsidiaries of Star Gas Partners, a consolidated Federal income tax return is filed.

Income and losses of Star Gas Partners are allocated directly to the individual partners. Even though Star Gas Partners will generate non-qualifying Master Limited Partnership income through its corporate subsidiaries, cash received by Star Gas Partners from its corporate subsidiaries is generally included in the determination of qualified Master Limited Partnership income. All or a portion of such cash could be taxable as dividend income or as a capital gain to the individual partners. This could be the case even if Star Gas Partners used the cash received from its corporate subsidiaries for purposes such as the repurchase of Common Units, other types of capital transactions, or paying its own expenses rather than for distributions to its individual partners.

The Bipartisan Budget Act of 2015 provides that any tax adjustments resulting from partnership audits will generally be determined, and any resulting tax, interest and penalties collected, at the partnership level for tax years beginning after December 31, 2017.

The accompanying financial statements are reported on a fiscal year, however, Star Gas Partners and its corporate subsidiaries file Federal and state income tax returns on a calendar year.

The current and deferred income tax expenses for the three and six months ended March 31, 2016, and 2015 are as follows:

 

     Three Months Ended      Six Months Ended  
     March 31,      March 31,  

(in thousands)

   2016      2015      2016      2015  

Income before income taxes

   $  94,113       $ 129,876       $ 115,588       $ 156,789   

Current tax expense

   $ 31,218       $ 46,642       $ 40,027       $ 57,772   

Deferred tax expense

     7,686         7,547         8,294         7,776   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total tax expense

   $ 38,904       $ 54,189       $ 48,321       $ 65,548   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of January 1, 2016, Star Acquisitions, Inc., a wholly-owned subsidiary of the Partnership, had an estimated Federal net operating loss carry forward (“NOLs”) of approximately $3.9 million. The Federal NOLs, which will expire between 2018 and 2024, are generally available to offset any future taxable income but are also subject to annual limitations of between $1.0 million and $2.2 million.

Due to a change in a state tax law enacted in December 2015, the Partnership increased its valuation allowance by $0.5 million. The balance of the valuation allowance at March 31, 2016, is $3.5 million.

At March 31, 2016, we did not have unrecognized income tax benefits.

Our continuing practice is to recognize interest and penalties related to income tax matters as a component of income tax expense. 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, Pennsylvania and New Jersey, we have four, four, four, and five tax years, respectively, 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.

 

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11) Supplemental Disclosure of Cash Flow Information

 

     Six Months Ended  
     March 31,  

(in thousands)

   2016      2015  

Cash paid during the period for:

     

Income taxes, net

   $ 2,507       $ 11,960   

Interest

   $ 3,310       $ 7,022   

Non-cash investing activities:

     

Acquisition of NYC heating oil customer list

   $ —         $ 886   

Non-cash operating activities:

     

Increase in interest expense—amortization of debt discount on 8.875% Senior Notes and amortization of deferred charges on senior secured term loan

   $ 144       $ 60   

12) Commitments and Contingencies

On February 18, 2016, a civil action was filed in the United States District Court, District of New Jersey, entitled M. Norman Donnenfeld v. Petro Home Services, Petro Holdings Inc. and Petro, Inc., Civil Action Number 2:16-cv-00882 JMV-JBC, against Petro Home Services which is a brand name, Petro Holdings Inc. and Petro, Inc. Plaintiff alleges he did not receive expected contractual benefits under his protected price plan contract when oil prices fell and asserts various claims for relief including breach of contract, violation of the New York General Business Law and fraud. The Plaintiff also seeks to have a class certified of all customers of the defendants in the United States who entered into protected price plan contracts and were denied the same contractual benefits and to be appointed to represent them. No class has yet been certified in this action. The Plaintiff seeks compensatory, punitive and other damages in unspecified amounts. The Partnership believes the allegations lack merit and intends to vigorously defend the action; at this time we cannot assess the potential outcome of this matter.

The Partnership’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. The Partnership maintains insurance policies with insurers in amounts and with coverages and deductibles we believe are reasonable and prudent. However, the Partnership cannot assure that this insurance will be adequate to protect it from all material expenses related to potential future claims. In the ordinary course of business the Partnership is a defendant in various legal proceedings and litigations. The Partnership 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 Partnership’s results of operations, financial position or liquidity.

13) Earnings Per Limited Partner Unit

Income per limited partner unit is computed in accordance with FASB 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 Partnership’s aggregate net income exceeds its aggregate distribution for such period, the Partnership 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 Partnership’s overall net income or other financial results. However, for periods in which the Partnership’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 result 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 Partnership’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 Partnership’s contractual participation rights are taken into account.

 

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Table of Contents

The following presents the net income allocation and per unit data using this method for the periods presented:

 

     Three Months Ended      Six Months Ended  
Basic and Diluted Earnings Per Limited Partner:    March 31,      March 31,  

(in thousands, except per unit data)

   2016      2015      2016      2015  

Net income

   $ 55,209       $ 75,687       $ 67,267       $ 91,241   

Less General Partner’s interest in net income

     313         428         381         516   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to limited partners

     54,896         75,259         66,886         90,725   

Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60

     9,617         13,616         10,960         15,705   
  

 

 

    

 

 

    

 

 

    

 

 

 

Limited Partner’s interest in net income under FASB ASC 260-10-45-60

   $ 45,279       $ 61,643       $ 55,926       $ 75,020   
  

 

 

    

 

 

    

 

 

    

 

 

 

Per unit data:

           

Basic and diluted net income available to limited partners

   $ 0.96       $ 1.31       $ 1.17       $ 1.58   

Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60

     0.17         0.23         0.19         0.27   
  

 

 

    

 

 

    

 

 

    

 

 

 

Limited Partner’s interest in net income under FASB ASC 260-10-45-60

   $ 0.79       $ 1.08       $ 0.98       $ 1.31   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of Limited Partner units outstanding

     57,242         57,282         57,262         57,288   
  

 

 

    

 

 

    

 

 

    

 

 

 

14) Subsequent Events

Quarterly Distribution Declared

In April 2016, we declared a quarterly distribution of $0.1025 per unit, or $0.41 per unit on an annualized basis, on all Common Units with respect to the second quarter of fiscal 2016, payable on May 6, 2016, to holders of record on April 28, 2016. In accordance with our Partnership Agreement, the amount of distributions in excess of the minimum quarterly distribution of $0.0675, are distributed 90% to Common Unit holders and 10% to the General Partner unit holders (until certain distribution levels are met), subject to the management incentive compensation plan. As a result, $5.9 million will be paid to the Common Unit holders, $0.13 million to the General Partner unit holders (including $0.1 million of incentive distribution as provided in our Partnership Agreement) and $0.1 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.

 

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statement Regarding Forward-Looking Disclosure

This Quarterly Report on Form 10-Q includes “forward-looking statements” which represent our expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of weather conditions on our financial performance, the price and supply of the products that we sell, the consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, our ability to obtain new customers and retain existing customers, our ability to make strategic acquisitions, the impact of litigation, our ability to contract for our current and future supply needs, natural gas conversions, future union relations and the outcome of current and future union negotiations, the impact of current and future governmental regulations, including environmental, health, and safety regulations, the ability to attract and retain employees, customer credit worthiness, counterparty credit worthiness, marketing plans, general economic conditions, and new technology. All statements other than statements of historical facts included in this Report including, without limitation, the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are forward-looking statements. Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “seek,” “estimate,” and similar expressions are intended to identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct and actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, those set forth in this Report under the headings “Risk Factors” and “Business Strategy.” Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in this Report. All subsequent written and oral forward-looking statements attributable to the Partnership 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.

Seasonality

The following matters should be considered in analyzing our financial results. Our fiscal year ends on September 30. All references to quarters and years respectively in this document are to the fiscal quarters and years unless otherwise noted. The seasonal nature of our business has resulted, on average, during 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, the peak heating season. We generally realize net income in both of these quarters and net losses during the quarters ending June and September. 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 long-term (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.

 

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Every ten years, the National Oceanic and Atmospheric Administration (“NOAA”) computes and publishes average meteorological quantities, including the average temperature for the last 30 years by geographical location, and the corresponding degree days. The latest and most widely used data covers the years from 1981 to 2010. 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.

Home Heating Oil Price Volatility

In recent years, the wholesale price of home heating oil has been volatile, resulting in increased consumer price sensitivity to heating costs 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. The price of home heating oil is closely linked to the price refiners pay for crude oil, which is the principal cost component of home heating oil. The volatility in the wholesale cost of home heating oil, as measured by the New York Mercantile Exchange (“NYMEX”), for the fiscal years ending September 30, 2012 through March 31, 2016, on a quarterly basis, is illustrated in the following chart (price per gallon):

 

     Fiscal 2016(1)      Fiscal 2015(1)      Fiscal 2014(1)      Fiscal 2013(1)      Fiscal 2012  
Quarter Ended    Low      High      Low      High      Low      High      Low      High      Low      High  

December 31

   $ 1.08       $ 1.61       $ 1.85       $ 2.66       $ 2.84       $ 3.12       $ 2.90       $ 3.26       $ 2.72       $ 3.17   

March 31

     0.87         1.26         1.62         2.30         2.89         3.28         2.86         3.24         2.99         3.32   

June 30

     —           —           1.68         2.02         2.85         3.05         2.74         3.09         2.53         3.25   

September 30

     —           —           1.38         1.84         2.65         2.98         2.87         3.21         2.68         3.24   

 

(1) Beginning April 1, 2013, the NYMEX contract specifications were changed from high sulfur home heating oil to ultra low sulfur diesel. Ultra low sulfur diesel is similar in composition to ultra low sulfur home heating oil.

Impact on Liquidity of Wholesale Product Cost Volatility

Our liquidity is adversely impacted in times of increasing wholesale product costs, as we must use more cash to fund our hedging requirements and a portion of the increased levels of accounts receivable and inventory. Our liquidity is also adversely impacted at times by sudden and sharp decreases in wholesale product costs due to the increased margin requirements for futures contracts and collateral requirements for options and swaps that we use to manage market risks.

Impact of Warm Weather on Operating Results; Weather Hedge Contract

Weather conditions have a significant impact on the demand for home heating oil and propane because our customers depend on these products principally for heating purposes. Actual weather conditions can vary substantially from year to year, significantly affecting our financial performance. Over the last 30 years, the variation in temperatures based on heating degree days in our geographic areas of operations for the six month period ended March 31, have ranged from 21.5% warmer than normal to 8.4% colder than normal. The period from October 1, 2015 through March 31, 2016 was the second warmest during the past 30 years. To partially mitigate the adverse effect of warm weather on our cash flows, we have used weather hedging contracts for a number of years. For the fiscal 2016 and 2017 heating seasons, we entered into a weather hedge contract under which we are entitled to receive a payment of $35,000 per heating degree-day shortfall, when the total number of heating degree-days in the period covered is less than approximately 92.5% of the ten year average (the “Payment Threshold”). The hedge covers the period from November 1 through March 31 taken as a whole, and has a maximum payout of $12.5 million. During the first quarter of 2016, the Partnership recorded a credit of $12.5 million under this contract that reduced delivery and branch expenses. This amount was collected in April 2016.

 

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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 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).

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 fixed 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 on a per gallon basis could be greater, thus reducing expected margins.

Derivatives

“FASB ASC 815-10-05 Derivatives and Hedging” requires that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities. To the extent derivative instruments designated as cash flow hedges are effective, as defined under this guidance, changes in fair value are recognized in other comprehensive income until the forecasted hedged item is recognized in earnings. We have elected not to designate our derivative instruments as hedging instruments under this guidance and, as a result, the changes in fair value of the derivative instruments are recognized in our statement of operations. Therefore we experience volatility in earnings as outstanding derivative instruments are marked to market and non-cash gains and losses are recorded prior to the sale of the commodity to the customer. The volatility in any given period related to unrealized non-cash gains or losses on derivative instruments can be significant to our overall results. However, we ultimately expect those gains and losses to be offset by the cost of product when purchased.

Income Taxes

Book Versus Tax Deductions

The amount of cash flow that we generate in any given year depends upon a variety of factors, including the amount of cash income taxes that our corporate subsidiaries are required to pay, which will increase as tax depreciation and amortization decreases. The amount of depreciation and amortization that we deduct for book (i.e., financial reporting) purposes will differ from the amount that our subsidiaries can deduct for tax purposes. The table below compares the estimated depreciation and amortization for book purposes to the amount that our subsidiaries expect to deduct for tax purposes based on currently owned assets. Our subsidiaries file their tax returns based on a calendar year. The amounts below are based on our September 30 fiscal year.

 

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Estimated Depreciation and Amortization Expense

 

(In thousands) Fiscal Year

   Book      Tax  

2016

   $ 27,486       $ 32,710   

2017

     24,677         24,371   

2018

     21,801         19,344   

2019

     19,871         16,385   

2020

     17,248         14,010   

2021

     12,958         12,316   

Non-Deductible Partnership Expenses

The Partnership incurs certain expenses at the Partnership level that are not deductible for Federal or state income tax purposes by our corporate subsidiaries. As a result, our effective tax rate could differ from the statutory rate that would be applicable if such expenses were deductible.

Customer Attrition

We measure net customer attrition on an ongoing basis for our full service residential and commercial home heating oil and propane customers. Net customer attrition is the difference between gross customer losses and customers added through marketing efforts. Customers added through acquisitions are not included in the calculation of gross customer gains. However, additional customers that are obtained through marketing efforts or lost at newly acquired businesses are included in these calculations. Customer attrition percentage calculations include customers added through acquisitions in the denominators of the calculations on a weighted average basis. Gross customer losses are the result of a number of factors, including price competition, move-outs, credit losses and conversion to natural gas. 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.

 

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Customer gains and losses of home heating oil and propane customers

 

     Fiscal Year Ended  
     2016     2015     2014  
                   Net                   Net                   Net  
     Gross Customer      Gains /     Gross Customer      Gains /     Gross Customer      Gains /  
     Gains      Losses      (Attrition)     Gains      Losses      (Attrition)     Gains      Losses      (Attrition)  

First Quarter

     22,800         24,200         (1,400     27,400         23,100         4,300        25,700         22,700         3,000   

Second Quarter

     13,700         19,300         (5,600     16,000         18,200         (2,200     16,800         16,700         100   

Third Quarter

     —           —           0        7,400         14,000         (6,600     8,100         14,100         (6,000

Fourth Quarter

     —           —           0        13,900         17,900         (4,000     17,500         18,700         (1,200
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

     36,500         43,500         (7,000     64,700         73,200         (8,500     68,100         72,200         (4,100
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Customer gains and losses as a percentage of home heating oil and propane customer base

 

     Fiscal Year Ended  
     2016     2015     2014  
                 Net                 Net                 Net  
     Gross Customer     Gains /     Gross Customer     Gains /     Gross Customer     Gains /  
     Gains     Losses     (Attrition)     Gains     Losses     (Attrition)     Gains     Losses     (Attrition)  

First Quarter

     5.0     5.3     (0.3 %)      6.2     5.2     1.0     6.1     5.3     0.8

Second Quarter

     3.0     4.2     (1.2 %)      3.6     4.1     (0.5 %)      3.9     3.9     0.0

Third Quarter

     —          —          0.0     1.7     3.1     (1.4 %)      1.9     3.3     (1.4 %) 

Fourth Quarter

     —          —          0.0     3.1     4.0     (0.9 %)      4.1     4.4     (0.3 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     8.0     9.5     (1.5 %)      14.6     16.4     (1.8 %)      16.0     16.9     (0.9 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net account attrition for the first half of fiscal 2016 was 9,100 accounts greater than the first half of fiscal 2015. During the six months ended March 31, 2016, the Partnership lost 7,000 accounts (net), or 1.5%, of its home heating oil and propane customer base, compared to the six months ended March 31, 2015 in which the Partnership grew its customer base by 2,100 accounts (net), or 0.5%. For the six months ended March 31, 2016, our gross customer gains were 6,900 accounts less than the prior year’s comparable period and our gross customer losses for the first half of fiscal 2016 were 2,200 accounts higher than the six months ended March 31, 2015. The three and six months ended March 31, 2016 were warmer than the three and six months ended March 31, 2015 by 26.3% and 26.6%, respectively. In addition, the wholesale cost of product declined by $0.8182 per gallon, or 39.2%, year-over-year. We believe that our gross customer gains and ability to attract new accounts was impacted by the extremely warm weather as potential new accounts did not see a need for the higher level of service we can provide. We also believe that the precipitous drop in the wholesale cost of product also enabled competitors to lower their product offerings to levels that are not currently economically attractive for us. The increase in gross customer losses was largely due to an increase in losses from customers seeking lower prices.

During the six months ended March 31, 2016, we lost 0.8% of our home heating oil accounts to natural gas conversions versus 1.0% during the six months ended March 31,2015 and 1.2% for the six months ended March 31, 2014. Conversions to natural gas may continue as natural gas remains less expensive than home heating oil on an equivalent BTU basis.

Consolidated Results of Operations

The following is a discussion of the consolidated results of operations of the Partnership and its subsidiaries and should be read in conjunction with the historical financial and operating data and notes thereto included elsewhere in this Quarterly Report.

 

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Three Months Ended March 31, 2016

Compared to the Three Months Ended March 31, 2015

Volume

For the three months ended March 31, 2016, retail volume of home heating oil and propane sold decreased by 52.7 million gallons, or 25.1%, to 157.1 million gallons, compared to 209.8 million gallons for the three months ended March 31, 2015. For those locations where the Partnership 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 the three months ended March 31, 2016 were 26.3% warmer than the three months ended March 31, 2015 and 12.3% warmer than normal, as reported by NOAA. For the twelve months ended March 31, 2016, net customer attrition for the base business was 3.9%. The impact of fuel conservation, along with any period-to-period differences in delivery scheduling, the timing of accounts added or lost during the fiscal years, equipment efficiency, and other volume variances not otherwise described, are included in the chart below under the heading “Other.” An analysis of the change in the retail volume of home heating oil and propane, which is based on management’s estimates, sampling and other mathematical calculations and certain assumptions, is found below:

 

(in millions of gallons)

   Heating Oil
and Propane
 

Volume - Three months ended March 31, 2015

     209.8   

Acquisitions

     7.6   

Impact of warmer temperatures

     (54.7

Net customer attrition

     (7.7

Other

     2.1   
  

 

 

 

Change

     (52.7
  

 

 

 

Volume - Three months ended March 31, 2016

     157.1   
  

 

 

 

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 the three months ended March 31, 2016 compared to the three months ended March 31, 2015:

 

     Three Months Ended  

Customers

   March 31, 2016     March 31, 2015  

Residential Variable

     41.5     38.3

Residential Price-Protected

     45.8     47.6

Commercial/Industrial

     12.7     14.1
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

The customer mix from recent acquisitions has resulted in a slight percentage increase in residential variable volume sold and a slight decrease in the percentage of commercial volume sold. However, over the last several years, the Partnership has experienced a shift from variable pricing plans to price-protected offerings as customers seek surety of price, which may impact our ability to expand our per gallon margins in the future.

Volume of other petroleum products sold increased by 0.3 million gallons, or 0.9%, to 27.1 million gallons for the three months ended March 31, 2016, compared to 26.8 million gallons for the three months ended March 31, 2015 as a decline in the base business of 3.3 million gallons, or 12.2%, was more than offset by acquisitions which contributed 3.5 million gallons. The decline in the base business was due largely to a weather driven decrease in low margin wholesale sales.

 

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Product Sales

For the three months ended March 31, 2016, product sales decreased $301.7 million, or 42.7%, to $404.3 million, compared to $706.0 million for the three months ended March 31, 2015, due to a decline in wholesale product costs of $0.7625 per gallon, or 39.0%, and a decline in total volume of 22.2%.

Installations and Services

For the three months ended March 31, 2016, installation and service sales increased $1.4 million, or 2.5%, to $57.7 million, compared to $56.3 million for the three months ended March 31, 2015, due to acquisitions and growth in the base business.

Cost of Product

For the three months ended March 31, 2016, cost of product decreased $242.9 million, or 52.5%, to $219.9 million, compared to $462.8 million for the three months ended March 31, 2015, largely due to a $0.7625 per gallon, or 39.0%, decline in wholesale product cost and a 22.2% decrease in total volume.

Gross Profit—Product

The table below calculates the Partnership’s per gallon margins and reconciles product gross profit for home heating oil and propane 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 the three months ended March 31, 2016 increased by $0.0035 per gallon, or 0.3%, to $1.1242 per gallon, from $1.1207 per gallon during the three months ended March 31, 2015. Over the last two years, the Partnership was able to expand its per gallon margins due to a decline in per gallon wholesale product costs. Going forward, the Partnership cannot guarantee that the per gallon margins achieved during the three months ended March 31, 2016 are sustainable. Product sales and cost of product include home heating oil, propane, other petroleum products, and liquidated damages billings.

 

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     Three Months Ended  
     March 31, 2016      March 31, 2015  

Home Heating Oil and Propane

   Amount
(in millions)
     Per
Gallon
     Amount
(in millions)
     Per
Gallon
 

Volume

     157.1            209.8      
  

 

 

       

 

 

    

Sales

   $ 365.8       $ 2.3280       $ 646.9       $ 3.0836   

Cost

   $ 189.2       $ 1.2038       $ 411.8       $ 1.9629   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross Profit

   $ 176.6       $ 1.1242       $ 235.1       $ 1.1207   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Petroleum Products

   Amount
(in millions)
     Per
Gallon
     Amount
(in millions)
     Per
Gallon
 

Volume

     27.1            26.8      
  

 

 

       

 

 

    

Sales

   $ 38.5       $ 1.4243       $ 59.1       $ 2.2052   

Cost

   $ 30.7       $ 1.1346       $ 51.0       $ 1.9037   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross Profit

   $ 7.8       $ 0.2896       $ 8.1       $ 0.3015   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Product

   Amount
(in millions)
            Amount
(in millions)
        

Sales

   $ 404.3          $ 706.0      

Cost

   $ 219.9          $ 462.8      
  

 

 

       

 

 

    

Gross Profit

   $ 184.5          $ 243.2      
  

 

 

       

 

 

    

For the three months ended March 31, 2016, total product gross profit was $184.5 million, $58.7 million less than for the three months ended March 31, 2015, primarily due to the decline in home heating oil and propane volume.

Cost of Installations and Services

Installation costs for the three months ended March 31, 2016 increased by $0.8 million, or 5.5%, to $16.4 million, compared to $15.6 million in installation costs for the three months ended March 31, 2015 due to acquisitions and growth in the base business. Installation costs as a percentage of installation sales for the three months ended March 31, 2016 and the three months ended March 31, 2015 were 86.8% and 88.6%, respectively.

Service expenses decreased to $42.4 million for the three months ended March 31, 2016, equivalent to 109.5% of service sales, versus $44.8 million, or 115.7% of service sales, for the three months ended March 31, 2015, as the additional service expense related to acquisitions of $1.4 million was more than offset by a reduction in the base business of $3.7 million. During the three months ended March 31, 2015, temperatures were much colder than normal and drove an increase in the number of service hours required to ensure that customers’ heating systems were operational. The mild weather experienced during the three months ended March 31, 2016 did not require a similar level of service and, as a result, service expenses were lower. We experienced a combined loss from service and installation of $1.2 million for the three months ended March 31, 2016 compared to a combined loss of $4.1 million for the three months ended March 31, 2015. Management views the service and installation department on a combined basis because many overhead functions and direct expenses, such as service technician time, cannot be separated or precisely allocated to either service or installation billings.

 

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(Increase) Decrease in the Fair Value of Derivative Instruments

During the three months ended March 31, 2016, the change in the fair value of derivative instruments resulted in a $14.3 million credit as an increase in the market value for unexpired hedges (a $4.0 million credit) added to a $10.3 million credit due to the expiration of certain hedged positions.

During the three months ended March 31, 2015, the change in the fair value of derivative instruments resulted in a $12.6 million credit due to the expiration of certain hedged positions (an $11.6 million credit) and an increase in the market value for unexpired hedges (a $1.0 million credit).

Delivery and Branch Expenses

For the three months ended March 31, 2016, delivery and branch expenses decreased $15.6 million, or 14.7%, to $90.5 million, compared to $106.1 million for the three months ended March 31, 2015, as an acquisition related increase of $3.2 million was more than offset by lower delivery and branch expenses in the base business of $18.6 million, or 17.5%, largely related to the 28.7% decline in home heating oil and propane volume.

Depreciation and Amortization

For the three months ended March 31, 2016, depreciation and amortization expense increased by $0.5 million, or 8.2%, to $6.7 million, compared to $6.2 million for the three months ended March 31, 2015, due to acquisitions.

General and Administrative Expenses

For the three months ended March 31, 2016, general and administrative expenses decreased $1.8 million, to $5.1 million, from $6.9 million for the three months ended March 31, 2015 due to a decrease in profit sharing expense.

The Partnership accrues approximately 6% of Adjusted EBITDA, as defined in the profit sharing plan, for distribution to its employees, and this amount is payable when the Partnership achieves Adjusted EBITDA of at least 70% of the amount budgeted. The dollar amount of the profit sharing pool is subject to increases and decreases that correspond with the increases and decreases in Adjusted EBITDA.

Finance Charge Income

For the three months ended March 31, 2016, finance charge income decreased by $0.5 million, or 33.1%, to $1.0 million compared to $1.5 million for the three months ended March 31, 2015. The decline in the wholesale cost of product and the decline in volume led to lower product sales and thus a decline in accounts receivable balances subject to a finance charge.

Interest Expense, Net

For the three months ended March 31, 2016, interest expense decreased $1.9 million, or 50.4%, to $1.9 million compared to $3.8 million for the three months ended March 31, 2015. In September 2015, the Partnership redeemed its $125.0 million principal amount of 8.875% Senior Notes outstanding due 2017 with proceeds from a new, five year $100.0 million bank term-loan and cash. This refinancing drove the reduction in interest expense due to lower variable rates and lower principle outstanding.

 

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Amortization of Debt Issuance Costs

For the three months ended March 31, 2016, amortization of debt issuance costs decreased by $0.1 million to $0.3 million compared to $0.4 million for the three months ended March 31, 2015.

Income Tax Expense

For the three months ended March 31, 2016, income tax expense decreased by $15.3 million to $38.9 million, from $54.2 million for the three months ended March 31, 2015, primarily due to a decrease in income before income taxes of $35.8 million. The Partnership’s effective income tax rate was 41.3% for the three months ended March 31, 2016 compared to 41.7% for the three months ended March 31, 2015.

Net Income

For the three months ended March 31, 2016, net income decreased $20.5 million, or 27.1%, to $55.2 million, from $75.7 million for the three months ended March 31, 2015, due to a decrease in pretax profit of $35.8 million which was reduced by a decline in income tax expense of $15.3 million.

Adjusted EBITDA

For the three months ended March 31, 2016, Adjusted EBITDA decreased by $39.0 million, or 30.5%, to $88.7 million as the impact of acquisitions, lower operating expenses in the base business, and lower service and installations costs were more than offset by the impact of the decline in volume attributable to the 26.3% warmer weather and higher net customer attrition for the twelve months ended March 31, 2016 on Adjusted EBITDA.

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 each provides additional information for evaluating our ability to make the Minimum Quarterly Distribution.

 

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EBITDA and Adjusted EBITDA are calculated as follows:

 

     Three Months Ended
March 31,
 

(in thousands)

   2016      2015  

Net income

   $ 55,209       $ 75,687   

Plus:

     

Income tax expense

     38,904         54,189   

Amortization of debt issuance cost

     315         403   

Interest expense, net

     1,891         3,816   

Depreciation and amortization

     6,725         6,217   
  

 

 

    

 

 

 

EBITDA (a)

     103,044         140,312   

(Increase) / decrease in the fair value of derivative instruments

     (14,324      (12,631
  

 

 

    

 

 

 

Adjusted EBITDA (a)

     88,720         127,681   

Add / (subtract)

     

Income tax expense

     (38,904      (54,189

Interest expense, net

     (1,891      (3,816

Provision for losses on accounts receivable

     188         3,331   

Increase in accounts receivables

     (15,515      (87,368

Decrease in inventories

     19,307         17,214   

Decrease in customer credit balances

     (25,644      (36,447

Change in deferred taxes

     7,686         7,546   

Change in other operating assets and liabilities

     37,089         43,068   
  

 

 

    

 

 

 

Net cash provided by operating activities

   $ 71,036       $ 17,020   
  

 

 

    

 

 

 

Net cash used in investing activities

   $ (2,045    $ (2,902
  

 

 

    

 

 

 

Net cash used in financing activities

   $ (9,267    $ (5,097
  

 

 

    

 

 

 

 

(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, 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.

 

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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, as such, 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.

 

    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.

 

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Six Months Ended March 31, 2016

Compared to the Six Months Ended March 31, 2015

Volume

For the six months ended March 31, 2016, retail volume of home heating oil and propane sold decreased by 80.1 million gallons, or 25.2%, to 237.2 million gallons, compared to 317.3 million gallons for the six months ended March 31, 2015. For those locations where the Partnership 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 the six months ended March 31, 2016 were 26.6% warmer than the six months ended March 31, 2015 and 20.4% warmer than normal, as reported by NOAA. For the twelve months ended March 31, 2016, net customer attrition for the base business was 3.9%. The impact of fuel conservation, along with any period-to-period differences in delivery scheduling, the timing of accounts added or lost during the fiscal years, equipment efficiency, and other volume variances not otherwise described, are included in the chart below under the heading “Other.” An analysis of the change in the retail volume of home heating oil and propane, which is based on management’s estimates, sampling, and other mathematical calculations and certain assumptions, is found below:

 

(in millions of gallons)

   Heating Oil
and Propane
 

Volume - Six months ended March 31, 2015

     317.3   

Acquisitions

     12.0   

Impact of warmer temperatures

     (84.2

Net customer attrition

     (11.6

Other

     3.7   
  

 

 

 

Change

     (80.1
  

 

 

 

Volume - Six months ended March 31, 2016

     237.2   
  

 

 

 

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 the six months ended March 31, 2016 compared to the six months ended March 31, 2015:

 

     Six Months Ended  

Customers

   March 31, 2016     March 31, 2015  

Residential Variable

     40.8     38.4

Residential Price-Protected

     46.4     47.5

Commercial/Industrial

     12.8     14.1
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

The customer mix from recent acquisitions has resulted in a slight percentage increase in residential variable volume sold and a slight decrease in the percentage of commercial volume sold. However, over the last several years, the Partnership has experienced a shift from our variable pricing plans to price-protected offerings as customers seek surety of price, which may impact our ability to expand our per gallon margins in the future.

Volume of other petroleum products sold increased by 1.7 million gallons, or 3.2%, to 54.4 million gallons for the six months ended March 31, 2016, compared to 52.7 million gallons for the six months ended March 31, 2015 as a decline in the base business of 5.4 million gallons, or 10.2%, was more than offset by acquisitions which contributed 7.1 million gallons. The decline in the base business was largely due to a weather driven decrease in low margin wholesale sales.

 

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Product Sales

For the six months ended March 31, 2016, product sales decreased $483.7 million, or 42.4%, to $657.3 million, compared to $1.1 billion for the six months ended March 31, 2015, due to a decline in wholesale product costs of $0.8182 per gallon, or 39.2%, and a decline in total volume of 21.2%, which was slightly offset by higher per gallon gross profit margins.

Installations and Services

For the six months ended March 31, 2016, installation and service sales increased $3.3 million, or 2.7%, to $123.8 million, compared to $120.5 million for the six months ended March 31, 2015, due to acquisitions and growth in the base business.

Cost of Product

For the six months ended March 31, 2016, cost of product decreased $402.1 million, or 52.1%, to $370.0 million, compared to $772.1 million for the six months ended March 31, 2015, due largely to a $0.8182 per gallon, or 39.2%, decrease in wholesale product cost and a decline in total volume of 21.2 %.

Gross Profit—Product

The table below calculates the Partnership’s per gallon margins and reconciles product gross profit for home heating oil and propane 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 the six months ended March 31, 2016 increased by $0.0297 per gallon, or 2.7%, to $1.1436 per gallon, from $1.1139 per gallon during the six months ended March 31, 2015. The Partnership was able to expand it’s per gallon margins due to the decline in per gallon wholesale product costs. Over the last 24 months the cost of home heating oil has declined significantly. Going forward, the Partnership cannot guarantee that the per gallon margins achieved during the six months ended March 31, 2016 are sustainable. Product sales and cost of product include home heating oil, propane, other petroleum products, and liquidated damages billings.

 

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     Six Months Ended  
     March 31, 2016      March 31, 2015  

Home Heating Oil and Propane

   Amount
(in millions)
     Per
Gallon
     Amount
(in millions)
     Per
Gallon
 

Volume

     237.2            317.3      
  

 

 

       

 

 

    

Sales

   $ 572.1       $ 2.4121       $ 1,013.5       $ 3.1945   

Cost

   $ 300.9       $ 1.2685       $ 660.1       $ 2.0806   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross Profit

   $ 271.2       $ 1.1436       $ 353.4       $ 1.1139   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Petroleum Products

   Amount
(in millions)
     Per
Gallon
     Amount
(in millions)
     Per
Gallon
 

Volume

     54.4            52.7      
  

 

 

       

 

 

    

Sales

   $ 85.2       $ 1.5663       $ 127.5       $ 2.4214   

Cost

   $ 69.1       $ 1.2706       $ 112.0       $ 2.1261   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross Profit

   $ 16.1       $ 0.2957       $ 15.6       $ 0.2953   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Product

   Amount
(in millions)
            Amount
(in millions)
        

Sales

   $ 657.3          $ 1,141.0      

Cost

   $ 370.0          $ 772.1      
  

 

 

       

 

 

    

Gross Profit

   $ 287.3          $ 369.0      
  

 

 

       

 

 

    

For the six months ended March 31, 2016, total product gross profit was $287.3 million, $81.6 million less than for the six months ended March 31, 2015, as the impact of higher home heating oil and propane margins was more than offset by a decline in home heating oil and propane volume.

Cost of Installations and Services

Total installation costs for the six months ended March 31, 2016 increased by $1.9 million, or 5.1%, to $38.7 million, compared to $36.8 million in installation costs for the six months ended March 31, 2015 due to acquisitions and some growth in the base business. Installation costs as a percentage of installation sales for the six months ended March 31, 2016 and the six months ended March 31, 2015 were 83.9% and 84.6%, respectively.

Service expenses decreased to $83.1 million for the six months ended March 31, 2016, or 107.0% of service sales, versus $84.2 million, or 109.4% of service sales, for the six months ended March 31, 2015, as the additional service expense related to acquisitions of $2.9 million was more than offset by a reduction in the base business of $4.0 million. During the three months ended March 31, 2015, temperatures were much colder than normal and drove an increase in the number of service hours required to ensure customers’ heating systems were operational. The mild weather experienced during the three months ended March 31, 2016 did not require a similar level of service and, as a result, expenses were lower. We experienced a combined gross profit from service and installation of $2.0 million for the six months ended March 31, 2016 compared to a combined gross loss of $0.5 million for the six months ended March 31, 2015. Management views the service and installation department on a combined basis because many overhead functions and direct expenses such as service technician time cannot be separated or precisely allocated to either service or installation billings.

 

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(Increase) Decrease in the Fair Value of Derivative Instruments

During the six months ended March 31, 2016, the change in the fair value of derivative instruments resulted in an $8.8 million credit as a decrease in the market value for unexpired hedges (a $3.0 million charge) was reduced by an $11.8 million credit due to the expiration of certain hedged positions.

During the six months ended March 31, 2015, the change in the fair value of derivative instruments resulted in an $4.3 million credit due to the expiration of certain hedged positions (a $10.4 million credit) and a decrease in the market value of unexpired hedges (a $6.1 million charge).

Delivery and Branch Expenses

For the six months ended March 31, 2016, delivery and branch expenses decreased $30.2 million, or 16.4%, to $154.7 million, compared to $184.9 million for the six months ended March 31, 2015, as an acquisition related increase of $6.1 million was more than offset by lower delivery and branch expenses of $23.7 million, or 12.8%, largely related to the weather related decline in volume in the base business of 29.0% and a $12.5 million credit recorded in the first quarter of 2016 under the Partnership’s weather hedge contract.

Depreciation and Amortization

For the six months ended March 31, 2016, depreciation and amortization expense increased by $1.1 million, or 9.0%, to $13.5 million, compared to $12.4 million for the six months ended March 31, 2015 due to acquisitions.

General and Administrative Expenses

For the six months ended March 31, 2016, general and administrative expenses decreased $1.4 million, to $11.5 million, from $12.9 million for the six months ended March 31, 2015, primarily due to a reduction in profit sharing expense.

The Partnership accrues approximately 6% of Adjusted EBITDA, as defined in the profit sharing plan, for distribution to its employees, and this amount is payable when the Partnership achieves Adjusted EBITDA of at least 70% of the amount budgeted. The dollar amount of the profit sharing pool is subject to increases and decreases in line with increases and decreases in Adjusted EBITDA.

Finance Charge Income

For the six months ended March 31, 2016, finance charge income decreased by $0.8 million, or 34.5%, to $1.5 million compared to $2.3 million for the six months ended March 31, 2015. The decline in the wholesale cost of product and the decline in volume led to lower product sales and thus a decline in accounts receivable balances subject to a finance charge.

Interest Expense, Net

For the six months ended March 31, 2016, interest expense decreased $3.5 million, or 48.5%, to $3.8 million compared to $7.3 million for the six months ended March 31, 2015. In September 2015, the Partnership redeemed its $125.0 million principal amount of 8.875% Senior Notes outstanding due 2017 with proceeds from a new, five year $100.0 million bank term-loan and cash. This refinancing drove the reduction in interest expense due to lower variable rates and lower principle outstanding.

 

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Table of Contents

Amortization of Debt Issuance Costs

For the six months ended March 31, 2016, amortization of debt issuance costs decreased $0.2 million to $0.6 million compared to $0.8 million for the six months ended March 31, 2015.

Income Tax Expense

For the six months ended March 31, 2016, the Partnership’s income tax expense decreased by $17.2 million to $48.3 million, from $65.5 million for the six months ended March 31, 2015, primarily due to a decrease in income before income taxes of $41.2 million. The Partnership’s effective income tax rate was 41.8% for the six months ended March 31, 2016, unchanged from the six months ended March 31, 2015.

Net Income

For the six months ended March 31, 2016, net income decreased $24.0 million, or 26.3%, to $67.3 million, from $91.2 million for the six months ended March 31, 2015, due to a decrease in pretax profit of $41.2 million which was reduced by a decline in income tax expense of $17.2 million.

Adjusted EBITDA

For the six months ended March 31, 2016, Adjusted EBITDA decreased by $48.2 million, or 27.9%, to $124.7 million as the impact of higher home heating oil and propane per gallon margins, lower operating expenses in the base business, lower service and installation costs and the $12.5 million credit recorded in the first quarter of 2016 under the weather insurance contract were more than offset by the impact of the decline in volume attributable to the 26.6% warmer weather and higher net customer attrition for the twelve months ended March 31, 2016 on Adjusted EBITDA.

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 each provides additional information for evaluating our ability to make the Minimum Quarterly Distribution.

 

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Table of Contents

EBITDA and Adjusted EBITDA are calculated as follows:

 

     Six Months Ended
March 31,
 

(in thousands)

   2016      2015  

Net income

   $ 67,267       $ 91,241   

Plus:

     

Income tax expense

     48,321         65,548   

Amortization of debt issuance cost

     627         803   

Interest expense, net

     3,750         7,276   

Depreciation and amortization

     13,491         12,375   
  

 

 

    

 

 

 

EBITDA

     133,456         177,243   

(Increase) / decrease in the fair value of derivative instruments

     (8,788      (4,341
  

 

 

    

 

 

 

Adjusted EBITDA

     124,668         172,902   

Add / (subtract)

     

Income tax expense

     (48,321      (65,548

Interest expense, net

     (3,750      (7,276

Provision for losses on accounts receivable

     (448      3,567   

Increase in accounts receivables

     (37,778      (145,609

Decrease in inventories

     10,243         8,581   

Decrease in customer credit balances

     (15,217      (42,309

Change in deferred taxes

     8,295         7,776   

Increase in weather hedge contract receivable

     (12,500      —     

Change in other operating assets and liabilities

     49,043         71,516   
  

 

 

    

 

 

 

Net cash provided by operating activities

   $ 74,235       $ 3,600   
  

 

 

    

 

 

 

Net cash used in investing activities

   $ (12,843    $ (4,586
  

 

 

    

 

 

 

Net cash used in financing activities

   $ (15,286    $ (10,886
  

 

 

    

 

 

 

 

(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, 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.

 

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Table of Contents

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.

 

    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.

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 the six months ended March 31, 2016, cash provided by operating activities increased by $70.6 million to $74.2 million, when compared to $3.6 million of cash provided by operating activities during the six months ended March 31, 2015, as a favorable change in cash relating to accounts receivable of $134.9 million (including customer credit balances) was reduced by a $43.5 million decrease in cash generated from operations and the timing of cash used to fund accounts payable, income taxes, and other cash payments of $20.8 million. The impact of significantly warmer weather, reduction in product purchases and the continuing decline in product costs drove higher cash flows from operations as compared to the prior period. In April 2016, the Partnership received the proceeds under its weather hedge contract.

Investing Activities

Our capital expenditures for the six months ended March 31, 2016 totaled $5.5 million, as we invested in computer hardware and software ($1.3 million), refurbished certain physical plants ($0.6 million), expanded our propane operations ($1.8 million) and made additions to our fleet and other equipment ($1.8 million). We also completed two acquisitions for $7.6 million and allocated $3.8 million of the gross purchase price to intangible assets, $1.6 million to goodwill, $2.1 million to fixed assets and $0.1 million to working capital.

 

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Our capital expenditures for the six months ended March 31, 2015 totaled $3.7 million, as we invested in computer hardware and software ($0.7 million), refurbished certain physical plants ($0.4 million), expanded our propane operations ($1.8 million) and made additions to our fleet and other equipment ($0.8 million). We also completed one acquisition for $1.1 million and allocated $0.3 million of the gross purchase price to intangible assets (including $0.1 million to goodwill), $0.7 million to fixed assets, and $0.1 million to working capital.

Financing Activities

During the six months ended March 31, 2016, we paid distributions of $10.9 million to our Common Unit holders and $0.22 million to our General Partner unit holders (including $0.18 million of incentive distributions as provided in our Partnership Agreement) and repaid $2.5 million of our term loan.

During the six months ended March 31, 2015, we borrowed $12.3 million under our credit facility and subsequently repaid $12.3 million. We also paid distributions of $10.0 million to our Common Unit holders, $0.17 million to our General Partner unit holders (including $0.12 million of incentive distributions as provided in our Partnership Agreement) and repurchased 0.123 million units for $0.7 million in connection with our unit repurchase plan.

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, business and weather conditions, the ability to pass on the full impact of high product costs to customers, the effects of high net customer attrition, conservation, and other factors. Capital requirements, at least in the near term, are expected to be provided by cash flows from operating activities, cash on hand as of March 31, 2016 ($146.6 million) or a combination thereof. To the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we anticipate that working capital will be financed by our revolving credit facility, as discussed below, and repaid from subsequent seasonal reductions in inventory and accounts receivable. As of March 31, 2016, we had no borrowings under our revolving credit facility and $49.6 million in letters of credit were outstanding, primarily for current and future insurance reserves. Our ability to borrow was reduced by $7.9 million to secure hedges with the bank group.

Under the terms of the third amended and restated credit agreement, we must maintain at all times Availability (borrowing base less amounts borrowed and letters of credit issued) of 12.5% of the maximum facility size and a fixed charge coverage ratio of not less than 1.1. We must also maintain a senior secured leverage ratio that at any time cannot be more than 3.0 as calculated during the quarters ending June or September, and at any time no more than 4.5 as calculated during the quarters ending December or March. As of March 31, 2016, Availability, as defined in the credit agreement, was $242.5 million and we were in compliance with the fixed charge coverage ratio and senior secured leverage ratio.

Maintenance capital expenditures for the remainder of fiscal 2016 are estimated to be approximately $4.2 million, excluding the capital requirements for leased fleet. In addition, we plan to invest an additional $1.3 million in our propane operations. Distributions for the balance of fiscal 2016, at the current quarterly level of $0.1025 per unit, would result in an aggregate of approximately $11.7 million to Common Unit holders, $0.266 million to our general partner (including $0.222 million of incentive distribution as provided for in our Partnership Agreement), and $0.222 million to management pursuant to the management incentive compensation plan which provides for certain members of management to receive incentive distributions that would otherwise be payable to the general partner. Under the terms of our credit facility, our term loan is repayable in quarterly payments of $2.5 million, and depending on our fiscal 2016 results, we may be required to make an additional payment. (see Note 9—Long-Term Debt and Bank Facility Borrowings) In addition, we intend to continue to repurchase Common Units pursuant to our unit repurchase plan and seek attractive acquisition opportunities within the Availability constraints of our revolving credit facility and funding resources.

 

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Table of Contents

Contractual Obligations and Off-Balance Sheet Arrangements

There has been no material change to Contractual Obligations and Off-Balance Sheet Arrangements since our September 30, 2015, Form 10-K disclosure and therefore, the table has not been included in this Form 10-Q.

Recent Accounting Pronouncements

The following new accounting standards are currently being evaluated by the Partnership, and are more fully described in Note 2. Summary of Significant Accounting Policies - Recent Accounting Pronouncements, of the consolidated financial statements:

 

    ASU No. 2014-09, Revenue from Contracts with Customers

 

    ASU No. 2015-03, Interest - Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs

 

    ASU No. 2015-11, Simplifying the Measurement of Inventory

 

    ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments

 

    ASU No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes

 

    ASU No. 2016-02, Leases

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate risk primarily through our bank credit facilities. We utilize these borrowings to meet our working capital needs.

At March 31, 2016, we had outstanding borrowings totaling $97.5 million, which are subject to variable interest rates under our credit agreement. In the event that interest rates associated with this facility were to increase 100 basis points, the after tax impact on annual future cash flows would be a decrease of $0.5 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 and vehicle fuels. 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 March 31, 2016, the potential impact on our hedging activity would be to increase the fair market value of these outstanding derivatives by $2.4 million to a negative fair market value of $(4.8) million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the fair market value of these outstanding derivatives by $1.7 million to a negative fair market value of $(8.9) million.

 

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Table of Contents

Item 4.

Controls and Procedures

a) Evaluation of disclosure controls and procedures

The General Partner’s chief executive officer and its chief financial officer evaluated the effectiveness of the Partnership’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 March 31, 2016. Based on that evaluation, such chief executive officer and chief financial officer concluded that the Partnership’s disclosure controls and procedures were effective as of March 31, 2016 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 its chief executive and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

b) Change in Internal Control over Financial Reporting

On August 4, 2015, the Partnership completed the acquisition of a heating oil and motor fuel dealer. The Partnership is in the early stages of integrating the heating and motor fuel dealer. The Partnership is analyzing, evaluating and, where necessary, will implement changes in controls and procedures relating to the dealer’s business as integration proceeds. As a result, this process may result in additions or changes to our internal control over financial reporting.

Otherwise, there were no changes in our internal control over financial reporting during the Partnership’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

c) Other

The General Partner and the Partnership believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a Partnership have been detected. Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable assurances of achieving our desired control objectives, and the chief executive officer and chief financial officer of our general partner have concluded, as of March 31, 2016, that our disclosure controls and procedures were effective in achieving that level of reasonable assurance.

 

40


Table of Contents

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

On February 18, 2016, a civil action was filed in the United States District Court, District of New Jersey, entitled M. Norman Donnenfeld v. Petro Home Services, Petro Holdings Inc. and Petro, Inc., Civil Action Number 2:16-cv-00882 JMV-JBC, against Petro Home Services which is a brand name, Petro Holdings Inc. and Petro, Inc. Plaintiff alleges he did not receive expected contractual benefits under his protected price plan contract when oil prices fell and asserts various claims for relief including breach of contract, violation of the New York General Business Law and fraud. The Plaintiff also seeks to have a class certified of all customers of the defendants in the United States who entered into protected price plan contracts and were denied the same contractual benefits and to be appointed to represent them. No class has yet been certified in this action. The Plaintiff seeks compensatory, punitive and other damages in unspecified amounts. The Company believes the allegations lack merit and intends to vigorously defend the action; at this time we cannot assess the potential outcome of this matter.

Item 1A.

Risk Factors

In addition to the other information set forth in this Report, investors should carefully review and consider the information regarding certain factors which could materially affect our business, results of operations, financial condition and cash flows set forth in Part I Item 1A. “Risk Factors” in our Fiscal 2015 Form 10-K. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 6.

Exhibits

 

(a) Exhibits Included Within:

 

  31.1    Certification of Chief Executive Officer, Star Gas Partners, L.P., pursuant to Rule 13a-14(a)/15d-14(a).
  31.2    Certification of Chief Financial Officer, Star Gas Partners, L.P., pursuant to Rule 13a-14(a)/15d-14(a).
  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.
101    The following materials from the Star Gas Partners, L.P. Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Partners’ Capital, (v) the Condensed Consolidated Statements of Cash Flows and (vi) related notes.
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema Document.
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB    XBRL Taxonomy Extension Label Linkbase Document.
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document.

 

41


Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized:

 

Star Gas Partners, L.P.
(Registrant)
By:  

Kestrel

Heat LLC AS GENERAL PARTNER

 

Signature

  

Title

 

Date

/s/ Richard F. Ambury

Richard F. Ambury

  

Executive Vice President, Chief Financial Officer, Treasurer and Secretary Kestrel Heat LLC (Principal Financial Officer)

  May 4, 2016

Signature

  

Title

 

Date

/s/ Cory A. Czekanski

Cory A. Czekanski

  

Vice President – Controller Kestrel Heat LLC (Principal Accounting Officer)

  May 4, 2016

 

42

Exhibit 31.1

CERTIFICATIONS

I, Steven J. Goldman, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Star Gas Partners, 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; and

 

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: May 4, 2016

/s/ Steven J. Goldman

Steven J. Goldman
President and Chief Executive Officer
Star Gas Partners, L.P.

Exhibit 31.2

CERTIFICATIONS

I, Richard F. Ambury, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Star Gas Partners, 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; and

 

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: May 4, 2016

/s/ Richard F. Ambury

Richard F. Ambury
Chief Financial Officer
Star Gas Partners, 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 Quarterly Report of Star Gas Partners, L.P. (the “Partnership”) on Form 10-Q for the quarterly period ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven J. Goldman, President and Chief Executive Officer of the Partnership, 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 Partnership.

A signed original of this written statement required by Section 906 has been provided to Star Gas Partners, L.P. and will be retained by Star Gas Partners, L.P. and furnished to the Securities and Exchange Commission or its staff upon request.

 

    STAR GAS PARTNERS, L.P.
    By:   KESTREL HEAT, LLC (General Partner)
Date: May 4, 2016     By:  

/s/ Steven J. Goldman

      Steven J. Goldman
      President and Chief Executive Officer
      Star Gas Partners, 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 Quarterly Report of Star Gas Partners, L.P. (the “Partnership”) on Form 10-Q for the quarterly period ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard F. Ambury, Chief Financial Officer of the Partnership, 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 Partnership.

A signed original of this written statement required by Section 906 has been provided to Star Gas Partners, L.P. and will be retained by Star Gas Partners, L.P. and furnished to the Securities and Exchange Commission or its staff upon request.

 

    STAR GAS PARTNERS, L.P.
    By:   KESTREL HEAT, LLC (General Partner)
Date: May 4, 2016     By:  

/s/ Richard F. Ambury

      Richard F. Ambury
      Chief Financial Officer
      Star Gas Partners, L.P.
v3.4.0.3
Document and Entity Information - shares
6 Months Ended
Mar. 31, 2016
Apr. 30, 2016
Document Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2016  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q2  
Trading Symbol SGU  
Entity Registrant Name STAR GAS PARTNERS LP  
Entity Central Index Key 0001002590  
Current Fiscal Year End Date --09-30  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   57,187,832
v3.4.0.3
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 31, 2016
Sep. 30, 2015
Current assets    
Cash and cash equivalents $ 146,614 $ 100,508
Receivables, net of allowance of $6,025 and $6,713, respectively 126,865 89,230
Inventories 45,560 55,671
Fair asset value of derivative instruments 1 935
Weather hedge contract receivable 12,500  
Current deferred tax assets, net 37,460 37,832
Prepaid expenses and other current assets 27,171 25,135
Total current assets 396,171 309,311
Property and equipment, net 68,855 68,123
Goodwill 212,676 211,045
Intangibles, net 103,487 107,317
Deferred charges and other assets, net 12,832 11,236
Total assets 794,021 707,032
Current liabilities    
Accounts payable 23,301 25,322
Fair liability value of derivative instruments 7,989 12,819
Current maturities of long-term debt 10,000 10,000
Accrued expenses and other current liabilities 149,816 107,745
Unearned service contract revenue 50,353 44,419
Customer credit balances 63,154 78,207
Total current liabilities 304,613 278,512
Long-term debt 87,500 90,000
Long-term deferred tax liabilities, net 29,982 21,524
Other long-term liabilities 25,821 27,110
Partners' capital    
Common unitholders 368,009 312,713
General partner (121) (283)
Accumulated other comprehensive loss, net of taxes (21,783) (22,544)
Total partners' capital 346,105 289,886
Total liabilities and partners' capital $ 794,021 $ 707,032
v3.4.0.3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2016
Sep. 30, 2015
Receivables, allowance $ 6,025 $ 6,713
v3.4.0.3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
Sales:        
Product $ 404,340 $ 706,004 $ 657,290 $ 1,141,016
Installations and services 57,685 56,305 123,790 120,510
Total sales 462,025 762,309 781,080 1,261,526
Cost and expenses:        
Cost of product 219,864 462,815 369,966 772,064
Cost of installations and services 58,858 60,362 121,770 121,045
(Increase) decrease in fair value of derivative instruments (14,324) (12,631) (8,788) (4,341)
Delivery and branch expenses 90,509 106,107 154,703 184,941
Depreciation and amortization expenses 6,725 6,217 13,491 12,375
General and administrative expenses 5,088 6,861 11,508 12,917
Finance charge income (1,014) (1,517) (1,535) (2,343)
Operating income 96,319 134,095 119,965 164,868
Interest expense, net (1,891) (3,816) (3,750) (7,276)
Amortization of debt issuance costs (315) (403) (627) (803)
Income before income taxes 94,113 129,876 115,588 156,789
Income tax expense 38,904 54,189 48,321 65,548
Net income 55,209 75,687 67,267 91,241
General Partner's interest in net income 313 428 381 516
Limited Partners' interest in net income $ 54,896 $ 75,259 $ 66,886 $ 90,725
Basic and diluted income per Limited Partner Unit [1] $ 0.79 $ 1.08 $ 0.98 $ 1.31
Weighted average number of Limited Partner units outstanding:        
Basic and Diluted 57,242 57,282 57,262 57,288
[1] See Note 13 Earnings Per Limited Partner Unit.
v3.4.0.3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
Net income $ 55,209 $ 75,687 $ 67,267 $ 91,241
Other comprehensive income:        
Unrealized gain on pension plan obligation [1] 648 558 1,296 1,114
Tax effect of unrealized gain on pension plan (268) (229) (535) (459)
Total other comprehensive income 380 329 761 655
Total comprehensive income $ 55,589 $ 76,016 $ 68,028 $ 91,896
[1] This item is included in the computation of net periodic pension cost.
v3.4.0.3
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL - 6 months ended Mar. 31, 2016 - USD ($)
shares in Thousands, $ in Thousands
Total
General Partner
Common Stock
Accumulated Other Comprehensive Income (Loss)
Beginning Balance at Sep. 30, 2015 $ 289,886 $ (283) $ 312,713 $ (22,544)
Beginning Balance, unit at Sep. 30, 2015   326 57,282  
Net income 67,267 $ 381 $ 66,886  
Unrealized gain on pension plan obligation 1,296 [1]     1,296
Tax effect of unrealized gain on pension plan (535)     (535)
Distributions (11,102) (219) $ (10,883)  
Retirement of units, shares [2]     (95)  
Retirement of units [2] (707)   $ (707)  
Ending Balance at Mar. 31, 2016 $ 346,105 $ (121) $ 368,009 $ (21,783)
Ending Balance, Unit at Mar. 31, 2016   326 57,187  
[1] This item is included in the computation of net periodic pension cost.
[2] See Note 3 - Common Unit Repurchase and Retirement.
v3.4.0.3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash flows provided by (used in) operating activities:    
Net income $ 67,267 $ 91,241
Adjustment to reconcile net income to net cash provided by (used in) operating activities:    
(Increase) decrease in fair value of derivative instruments (8,788) (4,341)
Depreciation and amortization 14,118 13,178
Provision for losses on accounts receivable (448) 3,567
Change in deferred taxes 8,295 7,776
Change in weather hedge contract receivable (12,500)  
Changes in operating assets and liabilities:    
Increase in receivables (37,778) (145,609)
Decrease in inventories 10,243 8,581
(Increase) decrease in other assets (1,889) 192
Increase (decrease) in accounts payable (1,274) 5,624
Decrease in customer credit balances (15,217) (42,309)
Increase in other current and long-term liabilities 52,206 65,700
Net cash provided by operating activities 74,235 3,600
Cash flows provided by (used in) investing activities:    
Capital expenditures (5,482) (3,674)
Proceeds from sales of fixed assets 254 157
Acquisitions (7,615) (1,069)
Net cash used in investing activities (12,843) (4,586)
Cash flows provided by (used in) financing activities:    
Revolving credit facility borrowings   12,296
Revolving credit facility repayments   (12,296)
Repayment of term loan (2,500)  
Distributions (11,102) (10,195)
Unit repurchases (707) (691)
Customer retainage payments (680)  
Payments of debt issuance costs (297)  
Net cash used in financing activities (15,286) (10,886)
Net increase (decrease) in cash and cash equivalents 46,106 (11,872)
Cash and cash equivalents at beginning of period 100,508 48,999
Cash and cash equivalents at end of period $ 146,614 $ 37,127
v3.4.0.3
Partnership Organization
6 Months Ended
Mar. 31, 2016
Partnership Organization

1) Partnership Organization

Star Gas Partners, L.P. (“Star Gas Partners,” the “Partnership,” “we,” “us,” or “our”) is a full service provider specializing in the sale of home heating products and services to residential and commercial customers. The Partnership also services and sells heating and air conditioning equipment to its home heating oil and propane customers and to a lesser extent, provides these offerings to customers outside of our home heating oil and propane customer base. In certain of our marketing areas, we provide home security and plumbing services primarily to our home heating oil and propane customer base. We also sell diesel fuel, gasoline and home heating oil on a delivery only basis. These products and services are offered through our home heating oil and propane locations. The Partnership has one reportable segment for accounting purposes. 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 Partnership is organized as follows:

 

    The Partnership is a master limited partnership, which as of March 31, 2016, had outstanding 57.2 million Common Units (NYSE: “SGU”), representing 99.43% limited partner interest in Star Gas Partners, and 0.3 million general partner units, representing 0.57% general partner interest in Star Gas Partners. The general partner of the Partnership 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”).

 

    The Partnership owns 100% of Star Acquisitions, Inc., a Minnesota corporation (“SA”), that owns 100% of Petro Holdings, Inc., a Minnesota corporation (“Petro”). SA and its subsidiaries are subject to Federal and state corporate income taxes. The Partnership’s operations are conducted through Petro and its subsidiaries. Petro is primarily a Northeast, Central and Southeast region retail distributor of home heating oil and propane that as of March 31, 2016, served approximately 452,000 full-service residential and commercial home heating oil and propane customers. Petro also sold diesel fuel, gasoline and home heating oil to approximately 79,000 customers on a delivery only basis. In addition, Petro installed, maintained, and repaired heating and air conditioning equipment for its customers and provided ancillary home services, including home security and plumbing, to approximately 26,000 customers.

 

    Petroleum Heat and Power Co., Inc., a Minnesota corporation (“PH&P”) is a 100% owned subsidiary of the Partnership. PH&P is the borrower and the Partnership is the guarantor of the third amended and restated credit agreement’s five-year senior secured term loan and the $300 million ($450 million during the heating season of December through April of each year) revolving credit facility, both due July 30, 2020 (See Note 9—Long-Term Debt and Bank Facility Borrowings).
v3.4.0.3
Summary of Significant Accounting Policies
6 Months Ended
Mar. 31, 2016
Summary of Significant Accounting Policies

2) Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements include the accounts of Star Gas Partners and its subsidiaries. All material inter-company 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 Partnership’s business, the results of operations and cash flows for the six month period ended March 31, 2016, and March 31, 2015, are not necessarily indicative of the results to be expected for the full year.

These interim financial statements of the Partnership 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 and should be read in conjunction with the financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended September 30, 2015.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of the unrealized gain (loss) amortization on the Partnership’s pension plan obligation for its two frozen defined benefit pension plans and the corresponding tax effect.

 

Weather Hedge Contract

To partially mitigate the adverse effect of warm weather on cash flows, the Partnership 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. The premium paid is included in the caption Prepaid Expenses and Other Current Assets in the accompanying balance sheets and amortized over the life of the contract, with the intrinsic value method applied at each interim period.

For fiscal years 2016 and 2017 the Partnership has a weather hedge contract with Swiss Re under which the Partnership is entitled to receive a payment of $35,000 per heating degree-day shortfall, when the accumulated number of heating degree-days in the entire hedge period is less than approximately 92.5% of the ten year average, the Payment Threshold as defined in the contract. The hedge covers the five month period from November 1, through March 31, taken as a whole, and has a maximum payout of $12.5 million for each respective fiscal year. The amount due to the Partnership at March 31, 2016 is $12.5 million based on the degree-day shortfall experienced during the most recent five month hedge period. In April 2016, the Partnership received $12.5 million from Swiss Re.

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

As of March 31, 2016 we had $0.1 million and $17.6 million 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 withdrawal liability. Based on the borrowing rates currently available to the Partnership for long-term financing of a similar maturity, the fair value of the NETTI withdrawal liability as of March 31, 2016 was $17.1 million. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace the latest revenue recognition guidance in GAAP when it becomes effective. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2019, with early adoption permitted beginning in the first quarter of fiscal 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Partnership is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The Partnership has not yet selected a transition method nor has it determined the timing of adoption.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. The update requires retrospective application and represents a change in accounting principle. The update is effective for our annual reporting period beginning in the first quarter of fiscal 2017, with early adoption permitted. The impact of ASU No. 2015-03 will be limited to the presentation of debt issuance cost on our balance sheet.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. The update changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2018, with early adoption permitted. The Partnership does not expect ASU No. 2015-11 to have a material impact on its consolidated financial statements and related disclosures.

In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which requires an acquiring entity to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquiring entity is required to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, the acquiring entity is to present separately on the face of its income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods as if the adjustment to the provisional amounts had been recognized as of the acquisition date. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2017. The Partnership does not expect ASU No. 2015-16 to have a material impact on its consolidated financial statements and related disclosures.

 

In November 2015, FASB issued ASU No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes, which eliminates the requirement for companies to present deferred tax assets and liabilities as current and non-current in a classified balance sheet. Instead, companies will be required to classify all deferred tax assets and liabilities as non-current. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2018, with early adoption permitted. The standard permits the use of either the prospective or retrospective transition method. The Partnership is evaluating the effect that ASU No. 2015-17 will have on its consolidated financial statements and related disclosures. The Partnership has not yet selected a transition method nor has it determined the timing of adoption.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The update requires all leases with a term greater than twelve months to be recognized on the balance sheet through a right-of-use asset and a lease liability, and the disclosure of key information pertaining to leasing arrangements. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2020, with early adoption permitted. The Partnership is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures. The Partnership has not yet selected a transition method nor has it determined the timing of adoption.

v3.4.0.3
Common Unit Repurchase and Retirement
6 Months Ended
Mar. 31, 2016
Common Unit Repurchase and Retirement

3) Common Unit Repurchase and Retirement

In July 2012, the Board authorized the repurchase of up to 3.0 million of the Partnership’s Common Units (“Plan III”). In July 2013, the Board authorized the repurchase of an additional 1.9 million Common Units under Plan III. The authorized Common Unit repurchases may be made from time to time in the open market, in privately negotiated transactions or in such other manner deemed appropriate by management. There is no guarantee of the exact number of units that will be purchased under the program and the Partnership may discontinue purchases at any time. The program does not have a time limit. The Board may also approve additional purchases of units from time to time in private transactions. The Partnership’s repurchase activities take into account SEC safe harbor rules and guidance for issuer repurchases. All of the Common Units purchased in the repurchase program will be retired.

Under the Partnership’s third amended and restated credit agreement dated July 30, 2015, in order to repurchase Common Units we must maintain Availability (as defined in the amended and restated credit agreement) of $45 million, 15.0% of the facility size of $300 million (assuming the non-seasonal aggregate commitment is in effect) on a historical pro forma and forward-looking basis, and a fixed charge coverage ratio of not less than 1.15 measured as of the date of repurchase. The Partnership was in compliance with this covenant for all unit repurchases made during the six months ended March 31, 2016.

The following table shows repurchases under Plan III.

 

(in thousands, except per unit amounts)

Period

   Total Number of
Units Purchased

(a)
    Average Price
Paid per Unit

(b)
    Maximum Number
of Units that May
Yet Be Purchased
 

Plan III - Number of units authorized

         4,894   

Private transaction - Number of units authorized

         1,150   
      

 

 

 
         6,044   
  

 

 

   

 

 

   

Plan III - Fiscal years 2012 to 2015 total (c)

     3,742      $ 4.72        2,302   
  

 

 

   

 

 

   

Plan III - First quarter fiscal year 2016 total

     3      $ 7.02        2,299   
  

 

 

   

 

 

   

Plan III - January 2016

     —        $ —          2,299   

Plan III - February 2016

     60      $ 7.47        2,239   

Plan III - March 2016

     32      $ 7.53        2,207   
  

 

 

   

 

 

   

Plan III - Second quarter fiscal year 2016 total

     92      $ 7.49        2,207   
  

 

 

   

 

 

   

Plan III - Six months fiscal year 2016 total

     95      $ 7.48        2,207   
  

 

 

   

 

 

   

 

(a) Units were repurchased as part of a publicly announced program, except as noted in a private transaction.
(b) Amounts include repurchase costs.
(c) Includes 1.4 million common units acquired in a private transaction.
v3.4.0.3
Derivatives and Hedging-Disclosures and Fair Value Measurements
6 Months Ended
Mar. 31, 2016
Derivatives and Hedging-Disclosures and Fair Value Measurements

4) Derivatives and Hedging—Disclosures and Fair Value Measurements

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 Partnership 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. The Partnership has elected not to designate its 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 March 31, 2016, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers, the Partnership held the following derivative instruments that settle in future months to match anticipated sales: 5.4 million gallons of swap contracts, 3.4 million gallons of call options, 3.5 million gallons of put options, and 58.7 million net gallons of synthetic call options. To hedge the inter-month differentials for its price-protected customers, its physical inventory on hand and inventory in transit, the Partnership, as of March 31, 2016, had 0.7 million gallons of long swap contracts, 34.0 million gallons of long future contracts, and 53.1 million gallons of short future contracts that settle in future months. In addition to the previously described hedging instruments, to lock-in the differential between high sulfur home heating oil and ultra low sulfur diesel, the Partnership as of March 31, 2016, had 2.1 million gallons of spread contracts (simultaneous long and short positions). To hedge its internal fuel usage and other related activities for fiscal 2016, the Partnership, as of March 31, 2016, had 4.6 million gallons of swap contracts that settle in future months.

As of March 31, 2015, to hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers, the Partnership held the following derivative instruments that settle in future months to match anticipated sales: 6.3 million gallons of swap contracts, 4.1 million gallons of call options, 3.1 million gallons of put options, and 54.7 million net gallons of synthetic call options. To hedge the inter-month differentials for its price-protected customers, its physical inventory on hand and inventory in transit, the Partnership, as of March 31, 2015, had 34.1 million gallons of long future contracts, and 54.7 million gallons of short future contracts that settle in future months. To hedge its internal fuel usage and other related activities for fiscal 2015, the Partnership, as of March 31, 2015, had 3.2 million gallons of swap contracts that settle in future months.

The Partnership’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., Munich Re Trading LLC, Regions Financial Corporation, Societe Generale, and Wells Fargo Bank, N.A. The Partnership 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 Partnership generally does not receive cash collateral from its counterparties and does not restrict the use of cash collateral it maintains at counterparties. At March 31, 2016, the aggregate cash posted as collateral in the normal course of business at counterparties was $3.4 million ($3.4 million recorded in prepaid expenses and other current assets). Positions with counterparties who are also parties to our credit agreement are collateralized under that facility. As of March 31, 2016, $7.9 million of hedge positions and payable amounts were secured under the credit facility.

FASB ASC 820-10 Fair Value Measurements and Disclosures, established a three-tier fair value hierarchy, which classified the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Partnership’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 Partnership’s Level 2 derivative assets and liabilities represent the fair value of commodity 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 Partnership 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 Partnership. The Partnership’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 Partnership are based on a combination of the NYMEX published market prices and other inputs, including such factors as present value, volatility and duration.

 

The Partnership had no assets or liabilities that are measured at fair value on a nonrecurring basis subsequent to their initial recognition. The Partnership’s 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 March 31, 2016

 

Commodity contracts

 

Fair asset and fair liability value of derivative instruments

  $ 20,180      $ 2,817      $ 17,363   

Commodity contracts

 

Long-term derivative assets included in the deferred charges and other assets, net, and in the other long-term liabilities balances

    3,608        1,354        2,254   
   

 

 

   

 

 

   

 

 

 

Commodity contract assets at March 31, 2016

  $ 23,788      $ 4,171      $ 19,617   
   

 

 

   

 

 

   

 

 

 

Liability Derivatives at March 31, 2016

 

Commodity contracts

 

Fair liability and fair asset value of derivative instruments

  $ (28,168   $ (5,176   $ (22,992

Commodity contracts

 

Cash collateral

    —          —          —     

Commodity contracts

 

Long-term derivative liabilities included in the other long-term liabilities, and the deferred charges and other assets, net, balances

    (2,791     (635     (2,156
   

 

 

   

 

 

   

 

 

 

Commodity contract liabilities at March 31, 2016

  $ (30,959   $ (5,811   $ (25,148
   

 

 

   

 

 

   

 

 

 

Asset Derivatives at September 30, 2015

 

Commodity contracts

 

Fair asset and fair liability value of derivative instruments

  $ 26,628      $ 930      $ 25,698   

Commodity contracts

 

Long-term derivative assets included in the other long-term liabilities balance

    4,975        2,017        2,958   
   

 

 

   

 

 

   

 

 

 

Commodity contract assets at September 30, 2015

  $ 31,603      $ 2,947      $ 28,656   
   

 

 

   

 

 

   

 

 

 

Liability Derivatives at September 30, 2015

 

Commodity contracts

 

Fair liability and fair asset value of derivative instruments

  $ (41,270   $ —        $ (41,270

Commodity contracts

 

Cash collateral

    2,758        2,758        —     

Commodity contracts

 

Long-term derivative liabilities included in the other long-term liabilities balance

    (5,977     (2,038     (3,939
   

 

 

   

 

 

   

 

 

 

Commodity contract liabilities at September 30, 2015

  $ (44,489   $ 720      $ (45,209
   

 

 

   

 

 

   

 

 

 

 

The Partnership’s 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
 

Fair asset value of derivative instruments

  $ 342      $ (341   $ 1      $ —        $ —        $ 1   

Long-term derivative assets included in deferred charges and other assets, net

  $ 2,706      $ (1,644   $ 1,062      $ —        $ —        $ 1,062   

Fair liability value of derivative instruments

    19,838        (27,827     (7,989     —          —          (7,989

Long-term derivative liabilities included in other long-term liabilities, net

    902        (1,147     (245         (245
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total at March 31, 2016

  $ 23,788      $ (30,959   $ (7,171   $ —        $ —        $ (7,171
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair asset value of derivative instruments

  $ 935      $ —        $ 935      $ —        $ —        $ 935   

Fair liability value of derivative instruments

    25,693        (38,512     (12,819     —          —          (12,819

Long-term derivative liabilities included in other long-term liabilities, net

    4,975        (5,977     (1,002         (1,002
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total at September 30, 2015

  $ 31,603      $ (44,489   $ (12,886   $ —        $ —        $ (12,886
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(In thousands)                            

The Effect of Derivative Instruments on the Statement of Operations

 
        Amount of (Gain) or Loss Recognized  

Derivatives Not

Designated as Hedging

Instruments Under
FASB ASC 815-10

 

Location of (Gain) or Loss

Recognized in Income on Derivative

  Three Months
Ended
March 31, 2016
    Three Months
Ended
March 31, 2015
    Six Months
Ended
March 31, 2016
    Six Months
Ended
March 31, 2015
 

Closed Positions

         

Commodity contracts

  Cost of product (a)   $ 12,234      $ 17,322      $ 8,801      $ 10,517   

Commodity contracts

  Cost of installations and service (a)   $ 550      $ 859      $ 776      $ 1,345   

Commodity contracts

  Delivery and branch expenses (a)   $ 565      $ 991      $ 879      $ 1,465   

Closed Positions

         

Commodity contracts

  (Increase) / decrease in the fair value of derivative instruments   $ (14,324   $ (12,631   $ (8,788   $ (4,341

 

(a) Represents realized closed positions and includes the cost of options as they expire.
v3.4.0.3
Inventories
6 Months Ended
Mar. 31, 2016
Inventories

5) Inventories

The Partnership’s product inventories are stated at the lower of cost or market computed on the weighted average cost method. All other inventories, representing parts and equipment are stated at the lower of cost or market using the FIFO method. The components of inventory were as follows (in thousands):

 

     March 31, 2016      September 30, 2015  

Product

   $ 25,271       $ 35,599   

Parts and equipment

     20,289         20,072   
  

 

 

    

 

 

 

Total inventory

   $ 45,560       $ 55,671   
  

 

 

    

 

 

 
v3.4.0.3
Property and Equipment
6 Months Ended
Mar. 31, 2016
Property and Equipment

6) 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 (in thousands):

 

     March 31, 2016      September 30, 2015  

Property and equipment

   $ 177,879       $ 179,631   

Less: accumulated depreciation

     109,024         111,508   
  

 

 

    

 

 

 

Property and equipment, net

   $ 68,855       $ 68,123   
  

 

 

    

 

 

 
v3.4.0.3
Business Combination
6 Months Ended
Mar. 31, 2016
Business Combination

7) Business Combination

During fiscal 2016, the Partnership acquired a motor fuel dealer and a propane dealer for an aggregate purchase price of approximately $7.6 million. The aggregate purchase price was allocated $3.8 million to intangible assets, $1.6 million to goodwill, $2.1 million to fixed assets and $0.1 million to working capital. The acquired companies’ operating results are included in the Partnership’s consolidated financial statements starting on their respective acquisition date, and are not material to the Partnership’s financial condition, results of operations, or cash flows.

v3.4.0.3
Goodwill and Intangibles, net
6 Months Ended
Mar. 31, 2016
Goodwill and Intangibles, net

8) Goodwill and Intangibles, net

Goodwill

A summary of changes in the Partnership’s goodwill is as follows (in thousands):

 

Balance as of September 30, 2015

   $  211,045   

Fiscal year 2016 business combination

     1,631   
  

 

 

 

Balance as of March 31, 2016

   $ 212,676   
  

 

 

 

Intangibles, net

The gross carrying amount and accumulated amortization of intangible assets subject to amortization are as follows (in thousands):

 

     March 31, 2016      September 30, 2015  
     Gross                    Gross                
     Carrying      Accum.             Carrying      Accum.         
     Amount      Amortization      Net      Amount      Amortization      Net  

Customer lists

   $ 325,594       $ 243,365       $ 82,229       $ 322,027       $ 236,438       $ 85,589   

Trade names and other intangibles

     26,998         5,740         21,258         26,774         5,046         21,728   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 352,592       $ 249,105       $ 103,487       $ 348,801       $ 241,484       $ 107,317   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Amortization expense for intangible assets was $7.6 million for the six months ended March 31, 2016, compared to $6.7 million for the six months ended March 31, 2015.

v3.4.0.3
Long-Term Debt and Bank Facility Borrowings
6 Months Ended
Mar. 31, 2016
Long-Term Debt and Bank Facility Borrowings

9) Long-Term Debt and Bank Facility Borrowings

The Partnership’s debt is as follows (in thousands):

 

     March 31,      September 30,  
     2016      2015  
     Carrying             Carrying         
     Amount      Fair Value (a)      Amount      Fair Value (a)  

Revolving Credit Facility Borrowings

   $ —         $ —         $ —         $ —     

Senior Secured Term Loan

     97,500         97,500         100,000         100,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt

   $ 97,500       $ 97,500       $ 100,000       $ 100,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term portion of debt

   $ 10,000       $ 10,000       $ 10,000       $ 10,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term portion of debt

   $ 87,500       $ 87,500       $ 90,000       $ 90,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) The face amount of the Partnership’s variable rate long-term debt approximates fair value.

On July 30, 2015, the Partnership entered into a third amended and restated asset based credit agreement with a bank syndicate comprised of thirteen participants, which enables the Partnership to borrow up to $300 million ($450 million during the heating season of December through April of each year) on a revolving credit facility for working capital purposes (subject to certain borrowing base limitations and coverage ratios), provides for a $100 million five-year senior secured term loan (the “$100 million Term Loan”), allows for the issuance of up to $100 million in letters of credit, and has a maturity date of July 30, 2020.

The Partnership can increase the revolving credit facility size by $100 million without the consent of the bank group. However, the bank group is not obligated to fund the $100 million increase. If the bank group elects not to fund the increase, the Partnership can add additional lenders to the group, with the consent of the Agent, which shall not be unreasonably withheld. Obligations under the third amended and restated credit facility are guaranteed by the Partnership and its subsidiaries and are secured by liens on substantially all of the Partnership’s assets including accounts receivable, inventory, general intangibles, real property, fixtures and equipment.

All amounts outstanding under the third amended and restated revolving credit facility become due and payable on the facility termination date of July 30, 2020. The $100 million Term Loan, whose balance at March 31, 2016, was $97.5 million, is repayable in quarterly payments of $2.5 million, plus an annual payment equal to 25% of the annual Excess Cash Flow as defined in the agreement (an amount not to exceed $15 million annually), less certain voluntary prepayments made during the year, with final payment at maturity.

The interest rate on the third amended and restated revolving credit facility and the term loan is based on a margin over LIBOR or a base rate. At March 31, 2016, the effective interest rate on the term loan was approximately 3.58%.

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 third amended and restated credit agreement requires the Partnership to meet certain financial covenants, including a fixed charge coverage ratio (as defined in the credit agreement) of not less than 1.1 as long as the $100 million Term Loan is outstanding or revolving credit facility availability is less than 12.5% of the facility size. In addition, as long as the $100 million Term Loan is outstanding, a senior secured leverage ratio at any time cannot be more than 3.0 as calculated during the quarters ending June or September, and at any time no more than 4.5 as calculated during the quarters ending December or March.

Certain restrictions are also imposed by the agreement, including restrictions on the Partnership’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 March 31, 2016, $97.5 million of the term loan was outstanding, no amount was outstanding under the revolving credit facility, $7.9 million of hedge positions were secured under the credit agreement, and $49.6 million of letters of credit were issued and outstanding. At September 30, 2015, $100.0 million of the term loan was outstanding, no amount was outstanding under the revolving credit facility, $15.3 million of hedge positions were secured under the credit agreement, and $54.8 million of letters of credit were issued and outstanding.

At March 31, 2016, availability was $242.5 million, and the Partnership was in compliance with the fixed charge coverage ratio and the senior secured leverage ratio. At September 30, 2015, availability was $176.0 million, and the Partnership was in compliance with the fixed charge coverage ratio and the senior secured leverage ratio.

v3.4.0.3
Income Taxes
6 Months Ended
Mar. 31, 2016
Income Taxes

10) Income Taxes

Since Star Gas Partners is organized as a master limited partnership, it is not subject to tax at its entity level for Federal and state income tax purposes. However, Star Gas Partners’ income is derived from its corporate subsidiaries, and these entities do incur Federal and state income taxes relating to their respective corporate subsidiaries, which are reflected in these financial statements. For the corporate subsidiaries of Star Gas Partners, a consolidated Federal income tax return is filed.

Income and losses of Star Gas Partners are allocated directly to the individual partners. Even though Star Gas Partners will generate non-qualifying Master Limited Partnership income through its corporate subsidiaries, cash received by Star Gas Partners from its corporate subsidiaries is generally included in the determination of qualified Master Limited Partnership income. All or a portion of such cash could be taxable as dividend income or as a capital gain to the individual partners. This could be the case even if Star Gas Partners used the cash received from its corporate subsidiaries for purposes such as the repurchase of Common Units, other types of capital transactions, or paying its own expenses rather than for distributions to its individual partners.

The Bipartisan Budget Act of 2015 provides that any tax adjustments resulting from partnership audits will generally be determined, and any resulting tax, interest and penalties collected, at the partnership level for tax years beginning after December 31, 2017.

The accompanying financial statements are reported on a fiscal year, however, Star Gas Partners and its corporate subsidiaries file Federal and state income tax returns on a calendar year.

The current and deferred income tax expenses for the three and six months ended March 31, 2016, and 2015 are as follows:

 

     Three Months Ended      Six Months Ended  
     March 31,      March 31,  

(in thousands)

   2016      2015      2016      2015  

Income before income taxes

   $  94,113       $ 129,876       $ 115,588       $ 156,789   

Current tax expense

   $ 31,218       $ 46,642       $ 40,027       $ 57,772   

Deferred tax expense

     7,686         7,547         8,294         7,776   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total tax expense

   $ 38,904       $ 54,189       $ 48,321       $ 65,548   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of January 1, 2016, Star Acquisitions, Inc., a wholly-owned subsidiary of the Partnership, had an estimated Federal net operating loss carry forward (“NOLs”) of approximately $3.9 million. The Federal NOLs, which will expire between 2018 and 2024, are generally available to offset any future taxable income but are also subject to annual limitations of between $1.0 million and $2.2 million.

Due to a change in a state tax law enacted in December 2015, the Partnership increased its valuation allowance by $0.5 million. The balance of the valuation allowance at March 31, 2016, is $3.5 million.

At March 31, 2016, we did not have unrecognized income tax benefits.

Our continuing practice is to recognize interest and penalties related to income tax matters as a component of income tax expense. 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, Pennsylvania and New Jersey, we have four, four, four, and five tax years, respectively, 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.

v3.4.0.3
Supplemental Disclosure of Cash Flow Information
6 Months Ended
Mar. 31, 2016
Supplemental Disclosure of Cash Flow Information

11) Supplemental Disclosure of Cash Flow Information

 

     Six Months Ended  
     March 31,  

(in thousands)

   2016      2015  

Cash paid during the period for:

     

Income taxes, net

   $ 2,507       $ 11,960   

Interest

   $ 3,310       $ 7,022   

Non-cash investing activities:

     

Acquisition of NYC heating oil customer list

   $ —         $ 886   

Non-cash operating activities:

     

Increase in interest expense—amortization of debt discount on 8.875% Senior Notes and amortization of deferred charges on senior secured term loan

   $ 144       $ 60   
v3.4.0.3
Commitments and Contingencies
6 Months Ended
Mar. 31, 2016
Commitments and Contingencies

12) Commitments and Contingencies

On February 18, 2016, a civil action was filed in the United States District Court, District of New Jersey, entitled M. Norman Donnenfeld v. Petro Home Services, Petro Holdings Inc. and Petro, Inc., Civil Action Number 2:16-cv-00882 JMV-JBC, against Petro Home Services which is a brand name, Petro Holdings Inc. and Petro, Inc. Plaintiff alleges he did not receive expected contractual benefits under his protected price plan contract when oil prices fell and asserts various claims for relief including breach of contract, violation of the New York General Business Law and fraud. The Plaintiff also seeks to have a class certified of all customers of the defendants in the United States who entered into protected price plan contracts and were denied the same contractual benefits and to be appointed to represent them. No class has yet been certified in this action. The Plaintiff seeks compensatory, punitive and other damages in unspecified amounts. The Partnership believes the allegations lack merit and intends to vigorously defend the action; at this time we cannot assess the potential outcome of this matter.

The Partnership’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. The Partnership maintains insurance policies with insurers in amounts and with coverages and deductibles we believe are reasonable and prudent. However, the Partnership cannot assure that this insurance will be adequate to protect it from all material expenses related to potential future claims. In the ordinary course of business the Partnership is a defendant in various legal proceedings and litigations. The Partnership 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 Partnership’s results of operations, financial position or liquidity.

v3.4.0.3
Earnings Per Limited Partner Unit
6 Months Ended
Mar. 31, 2016
Earnings Per Limited Partner Unit

13) Earnings Per Limited Partner Unit

Income per limited partner unit is computed in accordance with FASB 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 Partnership’s aggregate net income exceeds its aggregate distribution for such period, the Partnership 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 Partnership’s overall net income or other financial results. However, for periods in which the Partnership’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 result 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 Partnership’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 Partnership’s contractual participation rights are taken into account.

 

The following presents the net income allocation and per unit data using this method for the periods presented:

 

     Three Months Ended      Six Months Ended  
Basic and Diluted Earnings Per Limited Partner:    March 31,      March 31,  

(in thousands, except per unit data)

   2016      2015      2016      2015  

Net income

   $ 55,209       $ 75,687       $ 67,267       $ 91,241   

Less General Partner’s interest in net income

     313         428         381         516   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to limited partners

     54,896         75,259         66,886         90,725   

Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60

     9,617         13,616         10,960         15,705   
  

 

 

    

 

 

    

 

 

    

 

 

 

Limited Partner’s interest in net income under FASB ASC 260-10-45-60

   $ 45,279       $ 61,643       $ 55,926       $ 75,020   
  

 

 

    

 

 

    

 

 

    

 

 

 

Per unit data:

           

Basic and diluted net income available to limited partners

   $ 0.96       $ 1.31       $ 1.17       $ 1.58   

Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60

     0.17         0.23         0.19         0.27   
  

 

 

    

 

 

    

 

 

    

 

 

 

Limited Partner’s interest in net income under FASB ASC 260-10-45-60

   $ 0.79       $ 1.08       $ 0.98       $ 1.31   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of Limited Partner units outstanding

     57,242         57,282         57,262         57,288   
  

 

 

    

 

 

    

 

 

    

 

 

 
v3.4.0.3
Subsequent Events
6 Months Ended
Mar. 31, 2016
Subsequent Events

14) Subsequent Events

Quarterly Distribution Declared

In April 2016, we declared a quarterly distribution of $0.1025 per unit, or $0.41 per unit on an annualized basis, on all Common Units with respect to the second quarter of fiscal 2016, payable on May 6, 2016, to holders of record on April 28, 2016. In accordance with our Partnership Agreement, the amount of distributions in excess of the minimum quarterly distribution of $0.0675, are distributed 90% to Common Unit holders and 10% to the General Partner unit holders (until certain distribution levels are met), subject to the management incentive compensation plan. As a result, $5.9 million will be paid to the Common Unit holders, $0.13 million to the General Partner unit holders (including $0.1 million of incentive distribution as provided in our Partnership Agreement) and $0.1 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.

v3.4.0.3
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Mar. 31, 2016
Basis of Presentation

Basis of Presentation

The Consolidated Financial Statements include the accounts of Star Gas Partners and its subsidiaries. All material inter-company 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 Partnership’s business, the results of operations and cash flows for the six month period ended March 31, 2016, and March 31, 2015, are not necessarily indicative of the results to be expected for the full year.

These interim financial statements of the Partnership 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 and should be read in conjunction with the financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended September 30, 2015.

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of the unrealized gain (loss) amortization on the Partnership’s pension plan obligation for its two frozen defined benefit pension plans and the corresponding tax effect.

Weather Hedge Contract

Weather Hedge Contract

To partially mitigate the adverse effect of warm weather on cash flows, the Partnership 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. The premium paid is included in the caption Prepaid Expenses and Other Current Assets in the accompanying balance sheets and amortized over the life of the contract, with the intrinsic value method applied at each interim period.

For fiscal years 2016 and 2017 the Partnership has a weather hedge contract with Swiss Re under which the Partnership is entitled to receive a payment of $35,000 per heating degree-day shortfall, when the accumulated number of heating degree-days in the entire hedge period is less than approximately 92.5% of the ten year average, the Payment Threshold as defined in the contract. The hedge covers the five month period from November 1, through March 31, taken as a whole, and has a maximum payout of $12.5 million for each respective fiscal year. The amount due to the Partnership at March 31, 2016 is $12.5 million based on the degree-day shortfall experienced during the most recent five month hedge period. In April 2016, the Partnership received $12.5 million from Swiss Re.

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

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

As of March 31, 2016 we had $0.1 million and $17.6 million 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 withdrawal liability. Based on the borrowing rates currently available to the Partnership for long-term financing of a similar maturity, the fair value of the NETTI withdrawal liability as of March 31, 2016 was $17.1 million. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of this liability.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace the latest revenue recognition guidance in GAAP when it becomes effective. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2019, with early adoption permitted beginning in the first quarter of fiscal 2018. The standard permits the use of either the retrospective or cumulative effect transition method. The Partnership is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The Partnership has not yet selected a transition method nor has it determined the timing of adoption.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. The update requires retrospective application and represents a change in accounting principle. The update is effective for our annual reporting period beginning in the first quarter of fiscal 2017, with early adoption permitted. The impact of ASU No. 2015-03 will be limited to the presentation of debt issuance cost on our balance sheet.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. The update changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2018, with early adoption permitted. The Partnership does not expect ASU No. 2015-11 to have a material impact on its consolidated financial statements and related disclosures.

In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which requires an acquiring entity to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquiring entity is required to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, the acquiring entity is to present separately on the face of its income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods as if the adjustment to the provisional amounts had been recognized as of the acquisition date. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2017. The Partnership does not expect ASU No. 2015-16 to have a material impact on its consolidated financial statements and related disclosures.

 

In November 2015, FASB issued ASU No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes, which eliminates the requirement for companies to present deferred tax assets and liabilities as current and non-current in a classified balance sheet. Instead, companies will be required to classify all deferred tax assets and liabilities as non-current. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2018, with early adoption permitted. The standard permits the use of either the prospective or retrospective transition method. The Partnership is evaluating the effect that ASU No. 2015-17 will have on its consolidated financial statements and related disclosures. The Partnership has not yet selected a transition method nor has it determined the timing of adoption.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The update requires all leases with a term greater than twelve months to be recognized on the balance sheet through a right-of-use asset and a lease liability, and the disclosure of key information pertaining to leasing arrangements. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2020, with early adoption permitted. The Partnership is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures. The Partnership has not yet selected a transition method nor has it determined the timing of adoption.

v3.4.0.3
Common Unit Repurchase and Retirement (Tables)
6 Months Ended
Mar. 31, 2016
Partnership's Repurchase Activities

The following table shows repurchases under Plan III.

 

(in thousands, except per unit amounts)

Period

   Total Number of
Units Purchased

(a)
    Average Price
Paid per Unit

(b)
    Maximum Number
of Units that May
Yet Be Purchased
 

Plan III - Number of units authorized

         4,894   

Private transaction - Number of units authorized

         1,150   
      

 

 

 
         6,044   
  

 

 

   

 

 

   

Plan III - Fiscal years 2012 to 2015 total (c)

     3,742      $ 4.72        2,302   
  

 

 

   

 

 

   

Plan III - First quarter fiscal year 2016 total

     3      $ 7.02        2,299   
  

 

 

   

 

 

   

Plan III - January 2016

     —        $ —          2,299   

Plan III - February 2016

     60      $ 7.47        2,239   

Plan III - March 2016

     32      $ 7.53        2,207   
  

 

 

   

 

 

   

Plan III - Second quarter fiscal year 2016 total

     92      $ 7.49        2,207   
  

 

 

   

 

 

   

Plan III - Six months fiscal year 2016 total

     95      $ 7.48        2,207   
  

 

 

   

 

 

   

 

(a) Units were repurchased as part of a publicly announced program, except as noted in a private transaction.
(b) Amounts include repurchase costs.
(c) Includes 1.4 million common units acquired in a private transaction.
v3.4.0.3
Derivatives and Hedging-Disclosures and Fair Value Measurements (Tables)
6 Months Ended
Mar. 31, 2016
Partnership's Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

The Partnership’s 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 March 31, 2016

 

Commodity contracts

 

Fair asset and fair liability value of derivative instruments

  $ 20,180      $ 2,817      $ 17,363   

Commodity contracts

 

Long-term derivative assets included in the deferred charges and other assets, net, and in the other long-term liabilities balances

    3,608        1,354        2,254   
   

 

 

   

 

 

   

 

 

 

Commodity contract assets at March 31, 2016

  $ 23,788      $ 4,171      $ 19,617   
   

 

 

   

 

 

   

 

 

 

Liability Derivatives at March 31, 2016

 

Commodity contracts

 

Fair liability and fair asset value of derivative instruments

  $ (28,168   $ (5,176   $ (22,992

Commodity contracts

 

Cash collateral

    —          —          —     

Commodity contracts

 

Long-term derivative liabilities included in the other long-term liabilities, and the deferred charges and other assets, net, balances

    (2,791     (635     (2,156
   

 

 

   

 

 

   

 

 

 

Commodity contract liabilities at March 31, 2016

  $ (30,959   $ (5,811   $ (25,148
   

 

 

   

 

 

   

 

 

 

Asset Derivatives at September 30, 2015

 

Commodity contracts

 

Fair asset and fair liability value of derivative instruments

  $ 26,628      $ 930      $ 25,698   

Commodity contracts

 

Long-term derivative assets included in the other long-term liabilities balance

    4,975        2,017        2,958   
   

 

 

   

 

 

   

 

 

 

Commodity contract assets at September 30, 2015

  $ 31,603      $ 2,947      $ 28,656   
   

 

 

   

 

 

   

 

 

 

Liability Derivatives at September 30, 2015

 

Commodity contracts

 

Fair liability and fair asset value of derivative instruments

  $ (41,270   $ —        $ (41,270

Commodity contracts

 

Cash collateral

    2,758        2,758        —     

Commodity contracts

 

Long-term derivative liabilities included in the other long-term liabilities balance

    (5,977     (2,038     (3,939
   

 

 

   

 

 

   

 

 

 

Commodity contract liabilities at September 30, 2015

  $ (44,489   $ 720      $ (45,209
   

 

 

   

 

 

   

 

 

 
Partnership's Derivatives Assets (Liabilities) Offset by Counterparty

The Partnership’s 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
 

Fair asset value of derivative instruments

  $ 342      $ (341   $ 1      $ —        $ —        $ 1   

Long-term derivative assets included in deferred charges and other assets, net

  $ 2,706      $ (1,644   $ 1,062      $ —        $ —        $ 1,062   

Fair liability value of derivative instruments

    19,838        (27,827     (7,989     —          —          (7,989

Long-term derivative liabilities included in other long-term liabilities, net

    902        (1,147     (245         (245
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total at March 31, 2016

  $ 23,788      $ (30,959   $ (7,171   $ —        $ —        $ (7,171
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair asset value of derivative instruments

  $ 935      $ —        $ 935      $ —        $ —        $ 935   

Fair liability value of derivative instruments

    25,693        (38,512     (12,819     —          —          (12,819

Long-term derivative liabilities included in other long-term liabilities, net

    4,975        (5,977     (1,002         (1,002
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total at September 30, 2015

  $ 31,603      $ (44,489   $ (12,886   $ —        $ —        $ (12,886
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Partnership's Derivatives Assets (Liabilities) Offset by Counterparty

The Partnership’s 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
 

Fair asset value of derivative instruments

  $ 342      $ (341   $ 1      $ —        $ —        $ 1   

Long-term derivative assets included in deferred charges and other assets, net

  $ 2,706      $ (1,644   $ 1,062      $ —        $ —        $ 1,062   

Fair liability value of derivative instruments

    19,838        (27,827     (7,989     —          —          (7,989

Long-term derivative liabilities included in other long-term liabilities, net

    902        (1,147     (245         (245
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total at March 31, 2016

  $ 23,788      $ (30,959   $ (7,171   $ —        $ —        $ (7,171
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair asset value of derivative instruments

  $ 935      $ —        $ 935      $ —        $ —        $ 935   

Fair liability value of derivative instruments

    25,693        (38,512     (12,819     —          —          (12,819

Long-term derivative liabilities included in other long-term liabilities, net

    4,975        (5,977     (1,002         (1,002
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total at September 30, 2015

  $ 31,603      $ (44,489   $ (12,886   $ —        $ —        $ (12,886
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Partnership's Effect on Derivative Instruments on the Statement of Operations
(In thousands)                            

The Effect of Derivative Instruments on the Statement of Operations

 
        Amount of (Gain) or Loss Recognized  

Derivatives Not

Designated as Hedging

Instruments Under
FASB ASC 815-10

 

Location of (Gain) or Loss

Recognized in Income on Derivative

  Three Months
Ended
March 31, 2016
    Three Months
Ended
March 31, 2015
    Six Months
Ended
March 31, 2016
    Six Months
Ended
March 31, 2015
 

Closed Positions

         

Commodity contracts

  Cost of product (a)   $ 12,234      $ 17,322      $ 8,801      $ 10,517   

Commodity contracts

  Cost of installations and service (a)   $ 550      $ 859      $ 776      $ 1,345   

Commodity contracts

  Delivery and branch expenses (a)   $ 565      $ 991      $ 879      $ 1,465   

Closed Positions

         

Commodity contracts

  (Increase) / decrease in the fair value of derivative instruments   $ (14,324   $ (12,631   $ (8,788   $ (4,341

 

(a) Represents realized closed positions and includes the cost of options as they expire.
v3.4.0.3
Inventories (Tables)
6 Months Ended
Mar. 31, 2016
Components of Inventory

The components of inventory were as follows (in thousands):

 

     March 31, 2016      September 30, 2015  

Product

   $ 25,271       $ 35,599   

Parts and equipment

     20,289         20,072   
  

 

 

    

 

 

 

Total inventory

   $ 45,560       $ 55,671   
  

 

 

    

 

 

 
v3.4.0.3
Property and Equipment (Tables)
6 Months Ended
Mar. 31, 2016
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 (in thousands):

 

     March 31, 2016      September 30, 2015  

Property and equipment

   $ 177,879       $ 179,631   

Less: accumulated depreciation

     109,024         111,508   
  

 

 

    

 

 

 

Property and equipment, net

   $ 68,855       $ 68,123   
  

 

 

    

 

 

 
v3.4.0.3
Goodwill and Intangibles, net (Tables)
6 Months Ended
Mar. 31, 2016
Summary of Changes in the Partnership's Goodwill

A summary of changes in the Partnership’s goodwill is as follows (in thousands):

 

Balance as of September 30, 2015

   $  211,045   

Fiscal year 2016 business combination

     1,631   
  

 

 

 

Balance as of March 31, 2016

   $ 212,676   
  

 

 

 
Gross Carrying Amount and Accumulated Amortization of Intangible Assets Subject to Amortization

The gross carrying amount and accumulated amortization of intangible assets subject to amortization are as follows (in thousands):

 

     March 31, 2016      September 30, 2015  
     Gross                    Gross                
     Carrying      Accum.             Carrying      Accum.         
     Amount      Amortization      Net      Amount      Amortization      Net  

Customer lists

   $ 325,594       $ 243,365       $ 82,229       $ 322,027       $ 236,438       $ 85,589   

Trade names and other intangibles

     26,998         5,740         21,258         26,774         5,046         21,728   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 352,592       $ 249,105       $ 103,487       $ 348,801       $ 241,484       $ 107,317   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
v3.4.0.3
Long-Term Debt and Bank Facility Borrowings (Tables)
6 Months Ended
Mar. 31, 2016
Partnership's Debt

The Partnership’s debt is as follows (in thousands):

 

     March 31,      September 30,  
     2016      2015  
     Carrying             Carrying         
     Amount      Fair Value (a)      Amount      Fair Value (a)  

Revolving Credit Facility Borrowings

   $ —         $ —         $ —         $ —     

Senior Secured Term Loan

     97,500         97,500         100,000         100,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt

   $ 97,500       $ 97,500       $ 100,000       $ 100,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term portion of debt

   $ 10,000       $ 10,000       $ 10,000       $ 10,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term portion of debt

   $ 87,500       $ 87,500       $ 90,000       $ 90,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) The face amount of the Partnership’s variable rate long-term debt approximates fair value.
v3.4.0.3
Income Taxes (Tables)
6 Months Ended
Mar. 31, 2016
Current and Deferred Income Tax Expenses

The current and deferred income tax expenses for the three and six months ended March 31, 2016, and 2015 are as follows:

 

     Three Months Ended      Six Months Ended  
     March 31,      March 31,  

(in thousands)

   2016      2015      2016      2015  

Income before income taxes

   $  94,113       $ 129,876       $ 115,588       $ 156,789   

Current tax expense

   $ 31,218       $ 46,642       $ 40,027       $ 57,772   

Deferred tax expense

     7,686         7,547         8,294         7,776   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total tax expense

   $ 38,904       $ 54,189       $ 48,321       $ 65,548   
  

 

 

    

 

 

    

 

 

    

 

 

 
v3.4.0.3
Supplemental Disclosure of Cash Flow Information (Tables)
6 Months Ended
Mar. 31, 2016
Supplemental Disclosure of Cash Flow Information
     Six Months Ended  
     March 31,  

(in thousands)

   2016      2015  

Cash paid during the period for:

     

Income taxes, net

   $ 2,507       $ 11,960   

Interest

   $ 3,310       $ 7,022   

Non-cash investing activities:

     

Acquisition of NYC heating oil customer list

   $ —         $ 886   

Non-cash operating activities:

     

Increase in interest expense—amortization of debt discount on 8.875% Senior Notes and amortization of deferred charges on senior secured term loan

   $ 144       $ 60   
v3.4.0.3
Earnings Per Limited Partner Unit (Tables)
6 Months Ended
Mar. 31, 2016
Net Income Allocation and Per Unit Data

The following presents the net income allocation and per unit data using this method for the periods presented:

 

     Three Months Ended      Six Months Ended  
Basic and Diluted Earnings Per Limited Partner:    March 31,      March 31,  

(in thousands, except per unit data)

   2016      2015      2016      2015  

Net income

   $ 55,209       $ 75,687       $ 67,267       $ 91,241   

Less General Partner’s interest in net income

     313         428         381         516   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to limited partners

     54,896         75,259         66,886         90,725   

Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60

     9,617         13,616         10,960         15,705   
  

 

 

    

 

 

    

 

 

    

 

 

 

Limited Partner’s interest in net income under FASB ASC 260-10-45-60

   $ 45,279       $ 61,643       $ 55,926       $ 75,020   
  

 

 

    

 

 

    

 

 

    

 

 

 

Per unit data:

           

Basic and diluted net income available to limited partners

   $ 0.96       $ 1.31       $ 1.17       $ 1.58   

Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60

     0.17         0.23         0.19         0.27   
  

 

 

    

 

 

    

 

 

    

 

 

 

Limited Partner’s interest in net income under FASB ASC 260-10-45-60

   $ 0.79       $ 1.08       $ 0.98       $ 1.31   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of Limited Partner units outstanding

     57,242         57,282         57,262         57,288   
  

 

 

    

 

 

    

 

 

    

 

 

 
v3.4.0.3
Partnership Organization - Additional Information (Detail)
shares in Thousands
6 Months Ended
Jul. 30, 2015
USD ($)
Mar. 31, 2016
Customer
shares
Sep. 30, 2015
shares
Limited Partners' Capital Account [Line Items]      
Percentage of limited partner interest   99.43%  
Percentage of general partner interest   0.57%  
Common Stock      
Limited Partners' Capital Account [Line Items]      
Number of outstanding units | shares   57,187 57,282
Third Amendment      
Limited Partners' Capital Account [Line Items]      
Non Seasonal maximum borrowing capacity under revolving credit facility | $ $ 300,000,000    
Maximum borrowing capacity (heating season December to April) under revolving credit facility | $ $ 450,000,000    
Due date of debt Jul. 30, 2020    
Third Amendment | $100 million Term Loan      
Limited Partners' Capital Account [Line Items]      
Senior secured term loan maturity period 5 years    
Star Acquisitions, Inc      
Limited Partners' Capital Account [Line Items]      
Ownership interest of partnership   100.00%  
Petro Holdings, Inc      
Limited Partners' Capital Account [Line Items]      
Ownership interest of Star Acquisitions Inc.   100.00%  
Number of full-service residential and commercial home heating oil and propane customers served   452,000  
Number of customers to whom only home heating oil, gasoline and diesel fuel were sold on a delivery only basis   79,000  
Number of customers to whom ancillary services were provided   26,000  
Petroleum Heat and Power Co., Inc.      
Limited Partners' Capital Account [Line Items]      
Ownership interest of partnership   100.00%  
General Partner      
Limited Partners' Capital Account [Line Items]      
Number of outstanding units | shares   326 326
v3.4.0.3
Summary of Significant Accounting Policies - Additional Information (Detail) - USD ($)
6 Months Ended
Apr. 29, 2016
Mar. 31, 2016
Sep. 30, 2015
Schedule Of Significant Accounting Policies [Line Items]      
Accrued expenses and other current liabilities   $ 149,816,000 $ 107,745,000
Other long-term liabilities   25,821,000 $ 27,110,000
New England Teamsters & Trucking Industry Pension Fund      
Schedule Of Significant Accounting Policies [Line Items]      
Accrued expenses and other current liabilities   100,000  
Other long-term liabilities   17,600,000  
New England Teamsters & Trucking Industry Pension Fund | Significant Other Observable Inputs Level 2      
Schedule Of Significant Accounting Policies [Line Items]      
Multiemployer plan discounted withdrawal liability   17,100,000  
Subsidiaries of Swiss Re      
Schedule Of Significant Accounting Policies [Line Items]      
Weather hedge contract, payment entitled to be received per heating degree-day shortfall   $ 35,000  
Percentage in heating degree days less than ten year average that is covered   92.50%  
Derivative maximum payout   $ 12,500,000  
Derivative amount due   $ 12,500,000  
Subsidiaries of Swiss Re | Subsequent Event      
Schedule Of Significant Accounting Policies [Line Items]      
Receipt of cash from weather hedge contract $ 12,500,000    
v3.4.0.3
Common Unit Repurchase Plans and Retirement - Additional Information (Detail) - USD ($)
shares in Thousands
Jul. 30, 2015
Mar. 31, 2016
Jul. 31, 2013
Jul. 31, 2012
Capital Unit [Line Items]        
Partnership's common units authorized for repurchase   6,044    
Third Amendment        
Capital Unit [Line Items]        
Availability required to repurchase common units $ 45,000,000      
Percentage of the maximum facility size on a historical proforma and forward-looking basis 15.00%      
Non Seasonal maximum borrowing capacity under revolving credit facility $ 300,000,000      
Minimum fixed charge coverage ratio for distributions to unit holders or to repurchase common units 115.00%      
Initial Common Units Authorized Plan III Common Units Repurchase Program        
Capital Unit [Line Items]        
Partnership's common units authorized for repurchase       3,000
Additional Common Units Authorized Plan III Common Units Repurchase Program        
Capital Unit [Line Items]        
Partnership's common units authorized for repurchase     1,900  
v3.4.0.3
Partnership's Repurchase Activities (Detail) - $ / shares
shares in Thousands
1 Months Ended 3 Months Ended 6 Months Ended 48 Months Ended
Mar. 31, 2016
Feb. 29, 2016
Mar. 31, 2016
Dec. 31, 2015
Mar. 31, 2016
Sep. 30, 2015
Jan. 31, 2016
Capital Unit [Line Items]              
Partnership's common units authorized for repurchase 6,044   6,044   6,044    
Private Transaction              
Capital Unit [Line Items]              
Partnership's common units authorized for repurchase 1,150   1,150   1,150 1,400  
Plan III Common Units Repurchase Program              
Capital Unit [Line Items]              
Partnership's common units authorized for repurchase 4,894   4,894   4,894    
Total Number of Units Purchased [1] 32 60 92 3 95 3,742 [2]  
Average Price Paid per Unit [3] $ 7.53 $ 7.47 $ 7.49 $ 7.02 $ 7.48 $ 4.72 [2]  
Maximum Number of Units that May Yet Be Purchased 2,207 2,239 2,207 2,299 2,207 2,302 [2] 2,299
[1] Units were repurchased as part of a publicly announced program, except as noted in a private transaction.
[2] Includes 1.4 million common units acquired in a private transaction.
[3] Amounts include repurchase costs.
v3.4.0.3
Partnership's Repurchase Activities (Parenthetical) (Detail) - shares
shares in Thousands
Mar. 31, 2016
Sep. 30, 2015
Capital Unit [Line Items]    
Partnership's common units authorized for repurchase 6,044  
Private Transaction    
Capital Unit [Line Items]    
Partnership's common units authorized for repurchase 1,150 1,400
v3.4.0.3
Derivatives and Hedging-Disclosures and Fair Value Measurements - Additional Information (Detail)
gal in Millions, $ in Millions
6 Months Ended
Mar. 31, 2016
USD ($)
gal
Mar. 31, 2015
gal
Sep. 30, 2015
USD ($)
Derivative Instruments and Hedging Activities Disclosures [Line Items]      
Aggregated cash posted as collateral in normal course of business | $ $ 3.4    
Hedging positions and payable amounts secured under credit facility | $ 7.9   $ 15.3
Prepaid expenses and other current assets      
Derivative Instruments and Hedging Activities Disclosures [Line Items]      
Aggregated cash posted as collateral in normal course of business | $ $ 3.4    
Call Option      
Derivative Instruments and Hedging Activities Disclosures [Line Items]      
Derivative activity volume 3.4 4.1  
Put Option      
Derivative Instruments and Hedging Activities Disclosures [Line Items]      
Derivative activity volume 3.5 3.1  
Synthetic calls | Call Option      
Derivative Instruments and Hedging Activities Disclosures [Line Items]      
Derivative activity volume 58.7 54.7  
Inventory      
Derivative Instruments and Hedging Activities Disclosures [Line Items]      
Derivative activity volume 5.4 6.3  
Hedge its Internal Fuel Usage and Other Related Activities Swap Contracts Bought      
Derivative Instruments and Hedging Activities Disclosures [Line Items]      
Derivative activity volume 4.6 3.2  
Future Contracts | Long      
Derivative Instruments and Hedging Activities Disclosures [Line Items]      
Derivative activity volume 34.0 34.1  
Future Contracts | Short      
Derivative Instruments and Hedging Activities Disclosures [Line Items]      
Derivative activity volume 53.1 54.7  
Swap Contracts | Long      
Derivative Instruments and Hedging Activities Disclosures [Line Items]      
Derivative activity volume 0.7    
Spread Contracts      
Derivative Instruments and Hedging Activities Disclosures [Line Items]      
Derivative activity volume 2.1    
v3.4.0.3
Partnership's Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - Fair Value, Measurements, Recurring - Derivatives Not Designated as Hedging Instruments under FASB ASC 815-10 - Commodity Contract - USD ($)
$ in Thousands
Mar. 31, 2016
Sep. 30, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts $ 23,788 $ 31,603
Derivative Liabilities, commodity contracts (30,959) (44,489)
Fair asset and fair liability value of derivative instruments    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts 20,180 26,628
Fair liability and fair asset value of derivative instruments    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Liabilities, commodity contracts (28,168) (41,270)
Cash Collateral    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Liabilities, commodity contracts   2,758
Other long-term liabilities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts   4,975
Derivative Liabilities, commodity contracts   (5,977)
Deferred Charges and Other Assets, Net, and Other Long-Term Liabilities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts 3,608  
Derivative Liabilities, commodity contracts (2,791)  
Quoted Prices in Active Markets for Identical Assets Level 1    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts 4,171 2,947
Derivative Liabilities, commodity contracts (5,811) 720
Quoted Prices in Active Markets for Identical Assets Level 1 | Fair asset and fair liability value of derivative instruments    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts 2,817 930
Quoted Prices in Active Markets for Identical Assets Level 1 | Fair liability and fair asset value of derivative instruments    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Liabilities, commodity contracts (5,176)  
Quoted Prices in Active Markets for Identical Assets Level 1 | Cash Collateral    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Liabilities, commodity contracts   2,758
Quoted Prices in Active Markets for Identical Assets Level 1 | Other long-term liabilities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts   2,017
Derivative Liabilities, commodity contracts   (2,038)
Quoted Prices in Active Markets for Identical Assets Level 1 | Deferred Charges and Other Assets, Net, and Other Long-Term Liabilities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts 1,354  
Derivative Liabilities, commodity contracts (635)  
Significant Other Observable Inputs Level 2    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts 19,617 28,656
Derivative Liabilities, commodity contracts (25,148) (45,209)
Significant Other Observable Inputs Level 2 | Fair asset and fair liability value of derivative instruments    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts 17,363 25,698
Significant Other Observable Inputs Level 2 | Fair liability and fair asset value of derivative instruments    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Liabilities, commodity contracts (22,992) (41,270)
Significant Other Observable Inputs Level 2 | Other long-term liabilities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts   2,958
Derivative Liabilities, commodity contracts   $ (3,939)
Significant Other Observable Inputs Level 2 | Deferred Charges and Other Assets, Net, and Other Long-Term Liabilities    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative Assets, commodity contracts 2,254  
Derivative Liabilities, commodity contracts $ (2,156)  
v3.4.0.3
Offsetting of Financial Assets (Liabilities) and Derivative Assets (liabilities) (Detail) - USD ($)
$ in Thousands
Mar. 31, 2016
Sep. 30, 2015
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]    
Net Assets (Liabilities) Presented in the Statement of Financial Position $ 1 $ 935
Net Assets (Liabilities) Presented in the Statement of Financial Position (7,989) (12,819)
Subject to an enforceable master netting arrangement    
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]    
Gross Assets Recognized 23,788 31,603
Gross Liabilities Offset in the Statement of Financial Position (30,959) (44,489)
Net Assets (Liabilities) Presented in the Statement of Financial Position (7,171) (12,886)
Financial Instruments 0 0
Cash Collateral Received 0 0
Net Amount (7,171) (12,886)
Subject to an enforceable master netting arrangement | Fair asset and fair liability value of derivative instruments    
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]    
Gross Assets Recognized 342 935
Gross Liabilities Offset in the Statement of Financial Position (341)  
Net Assets (Liabilities) Presented in the Statement of Financial Position 1 935
Financial Instruments 0 0
Cash Collateral Received 0 0
Net Amount 1 935
Subject to an enforceable master netting arrangement | Deferred charges and other assets, net    
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]    
Gross Assets Recognized 2,706  
Gross Liabilities Offset in the Statement of Financial Position (1,644)  
Net Assets (Liabilities) Presented in the Statement of Financial Position 1,062  
Financial Instruments 0  
Cash Collateral Received 0  
Net Amount 1,062  
Subject to an enforceable master netting arrangement | Fair liability and fair asset value of derivative instruments    
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]    
Gross Assets Recognized 19,838 25,693
Gross Liabilities Offset in the Statement of Financial Position (27,827) (38,512)
Net Assets (Liabilities) Presented in the Statement of Financial Position (7,989) (12,819)
Financial Instruments 0 0
Cash Collateral Received 0 0
Net Amount (7,989) (12,819)
Subject to an enforceable master netting arrangement | Other long-term liabilities    
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]    
Gross Assets Recognized 902 4,975
Gross Liabilities Offset in the Statement of Financial Position (1,147) (5,977)
Net Assets (Liabilities) Presented in the Statement of Financial Position (245) (1,002)
Financial Instruments 0 0
Cash Collateral Received 0 0
Net Amount $ (245) $ (1,002)
v3.4.0.3
Effect of Derivative Instruments on Statement of Operations (Detail) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of (Gain) or Loss Unrealized, commodity contracts $ (14,324) $ (12,631) $ (8,788) $ (4,341)
Closed Positions        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of (Gain) or Loss Unrealized, commodity contracts (14,324) (12,631) (8,788) (4,341)
Fair Value, Measurements, Recurring | Derivatives Not Designated as Hedging Instruments under FASB ASC 815-10 | Commodity Contract | Cost of product | Closed Positions        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of (Gain) or Loss Recognized, commodity contracts [1] 12,234 17,322 8,801 10,517
Fair Value, Measurements, Recurring | Derivatives Not Designated as Hedging Instruments under FASB ASC 815-10 | Commodity Contract | Cost of installations and service | Closed Positions        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of (Gain) or Loss Recognized, commodity contracts [1] 550 859 776 1,345
Fair Value, Measurements, Recurring | Derivatives Not Designated as Hedging Instruments under FASB ASC 815-10 | Commodity Contract | Delivery and branch expenses | Closed Positions        
Derivative Instruments, Gain (Loss) [Line Items]        
Amount of (Gain) or Loss Recognized, commodity contracts [1] $ 565 $ 991 $ 879 $ 1,465
[1] Represents realized closed positions and includes the cost of options as they expire.
v3.4.0.3
Components of Inventory (Detail) - USD ($)
$ in Thousands
Mar. 31, 2016
Sep. 30, 2015
Inventory [Line Items]    
Product $ 25,271 $ 35,599
Parts and equipment 20,289 20,072
Total inventory $ 45,560 $ 55,671
v3.4.0.3
Component of Property and Equipment and their Estimated Useful Lives (Detail) - USD ($)
$ in Thousands
Mar. 31, 2016
Sep. 30, 2015
Property, Plant and Equipment [Line Items]    
Property and equipment $ 177,879 $ 179,631
Less: accumulated depreciation 109,024 111,508
Property and equipment, net $ 68,855 $ 68,123
v3.4.0.3
Business Combinations - Additional Information (Detail)
$ in Thousands
6 Months Ended
Mar. 31, 2016
USD ($)
PartnershipUnit
Sep. 30, 2015
USD ($)
Business Acquisition [Line Items]    
Number of dealers acquired | PartnershipUnit 2  
Goodwill $ 212,676 $ 211,045
Motor Fuel Dealer and Propane Dealer    
Business Acquisition [Line Items]    
Aggregate purchase price partnership acquired 7,600  
Aggregate purchase price allocation, intangible assets 3,800  
Goodwill 1,600  
Aggregate purchase price allocation, fixed assets 2,100  
Aggregate purchase price reduced by working capital credits $ 100  
v3.4.0.3
Summary of Changes in the Partnership's Goodwill (Detail)
$ in Thousands
6 Months Ended
Mar. 31, 2016
USD ($)
Goodwill [Line Items]  
Balance on beginning $ 211,045
Fiscal year business combinations 1,631
Balance on ending $ 212,676
v3.4.0.3
Intangible Assets Subject to Amortization (Detail) - USD ($)
$ in Thousands
Mar. 31, 2016
Sep. 30, 2015
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount $ 352,592 $ 348,801
Accum. Amortization 249,105 241,484
Net 103,487 107,317
Customer Lists    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 325,594 322,027
Accum. Amortization 243,365 236,438
Net 82,229 85,589
Trade Names And Other Intangibles    
Finite-Lived Intangible Assets [Line Items]    
Gross Carrying Amount 26,998 26,774
Accum. Amortization 5,740 5,046
Net $ 21,258 $ 21,728
v3.4.0.3
Goodwill and Intangibles, net - Additional Information (Detail) - USD ($)
$ in Millions
6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Finite-Lived Intangible Assets [Line Items]    
Amortization expense for intangible assets $ 7.6 $ 6.7
v3.4.0.3
Partnership's Debt (Detail) - USD ($)
$ in Thousands
Mar. 31, 2016
Sep. 30, 2015
Debt Instrument [Line Items]    
Long-term debt, carrying Amount $ 97,500 $ 100,000
Current maturities of long-term debt, carrying Amount 10,000 10,000
Long-term portion of debt, Carrying Amount 87,500 90,000
Long-term debt, fair value [1] 97,500 100,000
Current maturities of long-term debt, fair value [1] 10,000 10,000
Long-term portion of debt, fair value [1] 87,500 90,000
$100 million Term Loan    
Debt Instrument [Line Items]    
Long-term debt, carrying Amount 97,500 100,000
Long-term debt, fair value [1] $ 97,500 $ 100,000
[1] The face amount of the Partnership's variable rate long-term debt approximates fair value.
v3.4.0.3
Long-Term Debt and Bank Facility Borrowings - Additional Information (Detail) - USD ($)
Jul. 30, 2015
Mar. 31, 2016
Sep. 30, 2015
Debt Instrument [Line Items]      
Long-term debt, carrying Amount   $ 97,500,000 $ 100,000,000
Hedging positions and payable amounts secured under credit facility   7,900,000 15,300,000
Letters of credit issued and outstanding   49,600,000 54,800,000
Availability in compliance with the fixed charge coverage ratio   242,500,000 176,000,000
$100 million Term Loan      
Debt Instrument [Line Items]      
Long-term debt, carrying Amount   97,500,000 100,000,000
Revolving Credit Facility      
Debt Instrument [Line Items]      
Revolving credit facility outstanding   $ 97,500,000 $ 100,000,000
Third Amendment      
Debt Instrument [Line Items]      
Non Seasonal maximum borrowing capacity under revolving credit facility $ 300,000,000    
Maximum borrowing capacity (heating season December to April) under revolving credit facility 450,000,000    
Issuance of line of credit for working capital purposes $ 100,000,000    
Revolving credit facility expiry Jul. 30, 2020    
Additional revolving credit $ 100,000,000    
Facility size that can be increased without consulting bank group $ 100,000,000    
Term loan annual payment percentage 25.00%    
Debt instrument, effective interest rate   3.58%  
Minimum fixed charge coverage ratio 110.00%    
Availability percentage to maximum facility size 12.50%    
Third Amendment | $100 million Term Loan      
Debt Instrument [Line Items]      
Outstanding senior notes $ 100,000,000    
Senior secured term loan maturity period 5 years    
Third Amendment | $100 million Term Loan      
Debt Instrument [Line Items]      
Long-term debt, carrying Amount   $ 97,500,000  
Third Amendment | Quarterly      
Debt Instrument [Line Items]      
Term loan periodic payment $ 2,500,000    
Third Amendment | December through April      
Debt Instrument [Line Items]      
Commitment fee on the unused portion of the facility 0.30%    
Third Amendment | May through November      
Debt Instrument [Line Items]      
Commitment fee on the unused portion of the facility 0.20%    
Third Amendment | Maximum | Annually      
Debt Instrument [Line Items]      
Term loan periodic payment $ 15,000,000    
Third Amendment | Maximum | Quarters ending June or September      
Debt Instrument [Line Items]      
Senior secured leverage ratio 300.00%    
Third Amendment | Maximum | Quarters ending December or March      
Debt Instrument [Line Items]      
Senior secured leverage ratio 450.00%    
v3.4.0.3
Current and Deferred Income Tax Expense (Detail) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
Deferred Income Tax Assets And Liabilities        
Income before income taxes $ 94,113 $ 129,876 $ 115,588 $ 156,789
Current tax expense 31,218 46,642 40,027 57,772
Deferred tax expense 7,686 7,547 8,294 7,776
Total tax expense $ 38,904 $ 54,189 $ 48,321 $ 65,548
v3.4.0.3
Income Taxes - Additional Information (Detail) - USD ($)
6 Months Ended
Jan. 01, 2016
Mar. 31, 2016
Income Tax Disclosure [Abstract]    
Net operating loss carryforward $ 3,900,000  
Increase in valuation allowance   $ 500,000
Valuation allowance   3,500,000
Unrecognized income tax benefits   $ 0
Federal    
Income Tax Disclosure [Abstract]    
Number of years for examination   Four
New York    
Income Tax Disclosure [Abstract]    
Number of years for examination   Four
Connecticut    
Income Tax Disclosure [Abstract]    
Number of years for examination   Four
Pennsylvania    
Income Tax Disclosure [Abstract]    
Number of years for examination   Four
New Jersey    
Income Tax Disclosure [Abstract]    
Number of years for examination   Five
Minimum    
Income Tax Disclosure [Abstract]    
Annual limitation of federal NOLs $ 1,000,000  
Expiration date of net operating loss carryforward Dec. 31, 2018  
Maximum    
Income Tax Disclosure [Abstract]    
Annual limitation of federal NOLs $ 2,200,000  
Expiration date of net operating loss carryforward Dec. 31, 2024  
v3.4.0.3
Supplemental Disclosure of Cash Flow Information (Detail) - USD ($)
$ in Thousands
6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash paid during the period for:    
Income taxes, net $ 2,507 $ 11,960
Interest 3,310 7,022
Non-cash investing activities:    
Acquisition of NYC heating oil customer list   886
Non-cash operating activities:    
Increase in interest expense-amortization of debt discount on 8.875% Senior Notes and amortization of deferred charges on senior secured term loan $ 144 $ 60
v3.4.0.3
Supplemental Disclosure of Cash Flow Information (Parenthetical) (Detail)
Mar. 31, 2016
Mar. 31, 2015
8.875% Senior Notes    
Supplemental Cash Flow Information [Abstract]    
Interest on senior notes 8.875% 8.875%
v3.4.0.3
Net Income Allocation and Per Unit Data (Detail) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Mar. 31, 2016
Mar. 31, 2015
Basic and Diluted Earnings Per Limited Partner:        
Net income $ 55,209 $ 75,687 $ 67,267 $ 91,241
Less General Partner's interest in net income 313 428 381 516
Net income available to limited partners 54,896 75,259 66,886 90,725
Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60 9,617 13,616 10,960 15,705
Limited Partner's interest in net income under FASB ASC 260-10-45-60 $ 45,279 $ 61,643 $ 55,926 $ 75,020
Per unit data:        
Basic and diluted net income available to limited partners $ 0.96 $ 1.31 $ 1.17 $ 1.58
Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60 0.17 0.23 0.19 0.27
Limited Partner's interest in net income under FASB ASC 260-10-45-60 [1] $ 0.79 $ 1.08 $ 0.98 $ 1.31
Weighted average number of Limited Partner units outstanding 57,242 57,282 57,262 57,288
[1] See Note 13 Earnings Per Limited Partner Unit.
v3.4.0.3
Subsequent Events - Additional Information (Detail) - Subsequent Event - Dividend Declared
$ / shares in Units, $ in Thousands
1 Months Ended
Apr. 30, 2016
USD ($)
$ / shares
Subsequent Event [Line Items]  
Distribution declared | $ / shares $ 0.1025
Partners capital projected distribution amount on annualized basis | $ / shares 0.41
Minimum dividend distribution per unit | $ / shares $ 0.0675
Percentage of distributions to common unit holders in excess of minimum quarterly distribution 90.00%
Percentage of distributions to general unit holders in excess of minimum quarterly distribution 10.00%
Amount to paid to common unit holders $ 5,900
Amount to paid to the General Partner 130
Incentive distribution to the General Partner 100
Incentive distributions to management $ 100
Dividend payable date May 06, 2016
Dividend record date Apr. 28, 2016
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