Attached files
file | filename |
---|---|
EX-23.1 - EX-23.1 - Sprague Resources LP | d869258dex231.htm |
EX-99.4 - EX-99.4 - Sprague Resources LP | d869258dex994.htm |
EX-99.5 - EX-99.5 - Sprague Resources LP | d869258dex995.htm |
EX-99.1 - EX-99.1 - Sprague Resources LP | d869258dex991.htm |
EX-23.2 - EX-23.2 - Sprague Resources LP | d869258dex232.htm |
EX-99.2 - EX-99.2 - Sprague Resources LP | d869258dex992.htm |
8-K/A - FORM 8-K/A - Sprague Resources LP | d869258d8ka.htm |
Exhibit 99.3
Castle Oil Corporation and Subsidiaries | ||||
Consolidated Financial Statements | ||||
Years Ended March 31, 2014, 2013 and 2012 |
Castle Oil Corporation and Subsidiaries
Contents
Independent Auditors Report |
2 | |||
Consolidated financial statements: |
||||
Balance sheets |
3 | |||
Statements of income |
4 | |||
Statements of comprehensive income |
5 | |||
Statements of changes in stockholders equity |
6 | |||
Statements of cash flows |
7 | |||
Notes to consolidated financial statements |
8-17 |
1
Independent Auditors Report
Board of Directors
Castle Oil Corporation
Harrison, New York
We have audited the accompanying consolidated financial statements of Castle Oil Corporation and Subsidiaries, which comprise the consolidated balance sheets as of March 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in stockholders equity, and cash flows for each of the three years in the period ended March 31, 2014, and the related notes to the consolidated financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Castle Oil Corporation and Subsidiaries as of March 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2014 in accordance with accounting principles generally accepted in the United States.
/s/ BDO USA, LLP
Stamford, CT
June 17, 2014
2
Castle Oil Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, |
2014 | 2013 | ||||||
Assets |
||||||||
Current: |
||||||||
Cash and cash equivalents |
$ | 11,788,000 | $ | 12,201,000 | ||||
Accounts receivable, less allowance for possible losses of $5,250,000 and $5,000,000 |
181,121,000 | 156,503,000 | ||||||
Inventories (Notes 1 and 3) |
19,119,000 | 17,827,000 | ||||||
Deferred income taxes (Note 5) |
5,170,000 | 6,364,000 | ||||||
Prepaid expenses and other current assets |
3,384,000 | 13,324,000 | ||||||
|
|
|
|
|||||
Total current assets |
220,582,000 | 206,219,000 | ||||||
Property and equipment, less accumulated depreciation and amortization (Notes 2 and 4) |
23,638,000 | 24,303,000 | ||||||
Deferred costs and other assets, net |
932,000 | 773,000 | ||||||
|
|
|
|
|||||
Total assets |
$ | 245,152,000 | $ | 231,295,000 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Current: |
||||||||
Notes payable to banks (Note 3) |
$ | 121,000,000 | $ | 107,000,000 | ||||
Current maturities of long-term debt (Note 4) |
9,956,000 | 1,864,000 | ||||||
Current maturities of loan due to former shareholders (Note 7c) |
4,500,000 | | ||||||
Subordinated loans from shareholders (Note 7b) |
7,000,000 | | ||||||
Accounts payable |
18,341,000 | 19,156,000 | ||||||
Accrued expenses (Note 5) |
19,420,000 | 22,652,000 | ||||||
|
|
|
|
|||||
Total current liabilities |
180,217,000 | 150,672,000 | ||||||
Long-term debt, less current maturities (Note 4) |
| 9,956,000 | ||||||
Long-term maturities of loan due to former shareholders (Note 7c) |
4,500,000 | | ||||||
Subordinated loans from shareholders (Note 7b) |
| 7,000,000 | ||||||
Deferred income taxes (Note 5) |
8,283,000 | 8,616,000 | ||||||
|
|
|
|
|||||
Total liabilities |
193,000,000 | 176,244,000 | ||||||
|
|
|
|
|||||
Commitments and Contingencies (Notes 8 and 9) |
||||||||
Stockholders Equity: |
||||||||
Preferred stock, $100 par, shares authorized 1,500; shares issued 900; shares outstanding 720 in 2014 and 900 in 2013, respectively |
90,000 | 90,000 | ||||||
Class A common stock, $2 par, shares authorized and issued 1,000; shares outstanding 800 in 2014 and 1,000 in 2013, respectively |
2,000 | 2,000 | ||||||
Class B nonvoting common stock, $2 par, shares authorized and issued 9,000; shares outstanding 7,200 in 2014 and 9,000 in 2013, respectively |
18,000 | 18,000 | ||||||
Additional paid-in capital |
26,000 | 26,000 | ||||||
Retained earnings |
62,872,000 | 54,915,000 | ||||||
Accumulated other comprehensive income |
3,000 | | ||||||
|
|
|
|
|||||
63,011,000 | 55,051,000 | |||||||
Less 2,180 shares of preferred and common stock in treasury, at cost in 2014 (180 preferred shares, 200 Class A common shares, and 1,800 Class B nonvoting shares (Note 7c) |
(10,859,000 | ) | | |||||
|
|
|
|
|||||
Total stockholders equity |
52,152,000 | 55,051,000 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 245,152,000 | $ | 231,295,000 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
3
Castle Oil Corporation and Subsidiaries
Consolidated Statements of Income
Years ended March 31, |
2014 | 2013 | 2012 | |||||||||
Net sales |
$ | 862,061,000 | $ | 792,069,000 | $ | 589,621,000 | ||||||
Cost of sales |
796,661,000 | 729,459,000 | 542,952,000 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit before other operating income |
65,400,000 | 62,610,000 | 46,669,000 | |||||||||
Other operating income - thruput and storage charges |
1,950,000 | 2,958,000 | 2,839,000 | |||||||||
|
|
|
|
|
|
|||||||
Total gross profit |
67,350,000 | 65,568,000 | 49,508,000 | |||||||||
|
|
|
|
|
|
|||||||
Operating expenses: |
||||||||||||
Delivery and terminal |
21,327,000 | 19,674,000 | 17,503,000 | |||||||||
Selling, general and administrative |
25,668,000 | 22,576,000 | 20,261,000 | |||||||||
Depreciation and amortization (Note 2) |
2,248,000 | 2,215,000 | 2,936,000 | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
49,243,000 | 44,465,000 | 40,700,000 | |||||||||
|
|
|
|
|
|
|||||||
Income from operations before other income (expense) |
18,107,000 | 21,103,000 | 8,808,000 | |||||||||
|
|
|
|
|
|
|||||||
Other income (expense): |
||||||||||||
Interest and other income |
474,000 | 541,000 | 356,000 | |||||||||
Interest expense |
(3,439,000 | ) | (2,930,000 | ) | (3,136,000 | ) | ||||||
|
|
|
|
|
|
|||||||
Total other income (expense), net |
(2,965,000 | ) | (2,389,000 | ) | (2,780,000 | ) | ||||||
|
|
|
|
|
|
|||||||
Income before income tax expense |
15,142,000 | 18,714,000 | 6,028,000 | |||||||||
Income tax expense (Note 6) |
7,185,000 | 8,819,000 | 2,983,000 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 7,957,000 | $ | 9,895,000 | $ | 3,045,000 | ||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
Castle Oil Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
Years ended March 31, |
2014 | 2013 | 2012 | |||||||||
Net income |
$ | 7,957,000 | $ | 9,895,000 | $ | 3,045,000 | ||||||
Unrealized gain (loss) on cash flow hedging transactions |
6,000 | (212,000 | ) | 212,000 | ||||||||
Related tax effect on unrealized (loss) gain |
(3,000 | ) | 100,000 | (100,000 | ) | |||||||
|
|
|
|
|
|
|||||||
Comprehensive income |
$ | 7,960,000 | $ | 9,783,000 | $ | 3,157,000 | ||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
Castle Oil Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders Equity
Preferred stock |
Common stock |
Additional paid-in capital |
Retained earnings |
Accumulated other comprehensive income |
Treasury stock |
Total | ||||||||||||||||||||||
Balance at March 31, 2011 |
$ | 90,000 | $ | 20,000 | $ | 26,000 | $ | 42,575,000 | $ | | $ | | $ | 42,711,000 | ||||||||||||||
Net income |
| | | 3,045,000 | | | 3,045,000 | |||||||||||||||||||||
Unrealized gain - hedging |
| | | | 112,000 | | 112,000 | |||||||||||||||||||||
Dividends declared |
| | | (250,000 | ) | | | (250,000 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance at March 31, 2012 |
90,000 | 20,000 | 26,000 | 45,370,000 | 112,000 | | 45,618,000 | |||||||||||||||||||||
Net income |
| | | 9,895,000 | | | 9,895,000 | |||||||||||||||||||||
Unrealized loss - hedging |
| | | | (112,000 | ) | | (112,000 | ) | |||||||||||||||||||
Dividends declared |
| | | (350,000 | ) | | | (350,000 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance at March 31, 2013 |
90,000 | 20,000 | 26,000 | 54,915,000 | | | 55,051,000 | |||||||||||||||||||||
Net income |
| | | 7,957,000 | | | 7,957,000 | |||||||||||||||||||||
Unrealized gain - hedging |
| | | | 3,000 | | 3,000 | |||||||||||||||||||||
Purchase of preferred and common stock for treasury |
| | | | | (10,859,000 | ) | (10,859,000 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance at March 31, 2014 |
$ | 90,000 | $ | 20,000 | $ | 26,000 | $ | 62,872,000 | $ | 3,000 | $ | (10,859,000 | ) | $ | 52,152,000 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
6
Castle Oil Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years ended March 31, |
2014 | 2013 | 2012 | |||||||||
Cash flows from operating activities |
||||||||||||
Net income |
$ | 7,957,000 | $ | 9,895,000 | $ | 3,045,000 | ||||||
|
|
|
|
|
|
|||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
||||||||||||
Depreciation and amortization |
2,248,000 | 2,215,000 | 2,936,000 | |||||||||
Deferred income taxes |
861,000 | (1,715,000 | ) | 4,680,000 | ||||||||
Provision for losses on accounts receivable |
250,000 | 75,000 | (75,000 | ) | ||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
(24,868,000 | ) | (45,953,000 | ) | 14,804,000 | |||||||
Inventories |
(1,292,000 | ) | 8,907,000 | (8,736,000 | ) | |||||||
Prepaid expenses and other current assets |
9,940,000 | (5,994,000 | ) | (5,348,000 | ) | |||||||
Accounts payable |
(815,000 | ) | 8,959,000 | (2,168,000 | ) | |||||||
Accrued expenses |
(3,229,000 | ) | 11,310,000 | (8,860,000 | ) | |||||||
|
|
|
|
|
|
|||||||
Total adjustments |
(16,905,000 | ) | (22,196,000 | ) | (2,767,000 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash (used in) provided by operating activities |
(8,948,000 | ) | (12,301,000 | ) | 278,000 | |||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities |
||||||||||||
Purchase of property and equipment |
(1,270,000 | ) | (924,000 | ) | (1,205,000 | ) | ||||||
Payment for intangibles |
| | (272,000 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(1,270,000 | ) | (924,000 | ) | (1,477,000 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash flows from financing activities |
||||||||||||
Proceeds from short-term debt |
14,000,000 | 20,500,000 | (1,500,000 | ) | ||||||||
Long-term debt repayments |
(1,864,000 | ) | (1,364,000 | ) | (1,614,000 | ) | ||||||
Payments to former shareholders |
(1,700,000 | ) | | | ||||||||
Deferred financing costs and other |
(631,000 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) financing activities |
9,805,000 | 19,136,000 | (3,114,000 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net (decrease) increase in cash and cash equivalents |
(413,000 | ) | 5,911,000 | (4,313,000 | ) | |||||||
Cash and cash equivalents, beginning of year |
12,201,000 | 6,290,000 | 10,603,000 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents, end of year |
$ | 11,788,000 | $ | 12,201,000 | $ | 6,290,000 | ||||||
|
|
|
|
|
|
|||||||
Supplemental disclosures of cash flows information: |
||||||||||||
Cash paid for: |
||||||||||||
Interest |
$ | 3,340,000 | $ | 2,862,000 | $ | 3,116,000 | ||||||
Income taxes |
$ | 8,334,000 | $ | 2,200,000 | $ | 1,940,000 | ||||||
Supplemental disclosures of noncash financing activities: |
||||||||||||
Purchase of preferred and common stock for treasury |
$ | 9,000,000 | $ | | $ | | ||||||
Dividends |
$ | | $ | 350,000 | $ | 250,000 | ||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
7
Castle Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Accounting Policies
Business
Castle Oil Corporation and its subsidiaries (the Company) are independent distributors of heating oil and motor fuels in the New York metropolitan area. The Company operates a deep-water oil terminal in the New York City harbor. It also provides oil burner repair service for its customers and sells natural gas in certain parts of the New York metropolitan area. The Companys primary customers include large institutions, businesses and residences, as well as wholesale sales to other fuel oil suppliers.
Principles of Consolidation
The consolidated financial statements include the accounts of Castle Oil Corporation and its wholly-owned subsidiaries. All intercompany accounts and material transactions are eliminated.
Inventories
Inventories consisting primarily of fuel oil are stated at the lower of cost (last-in, first-out) or market. Inventories would have been higher by $13,665,000 at March 31, 2014 and $14,773,000 at March 31, 2013 had the first-in, first-out inventory method been used.
Property and Equipment and Depreciation and Amortization
Assets are stated at cost. Expenditures for additions, renewals and betterments are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. Upon retirement or disposal of assets, the cost and accumulated depreciation are eliminated from the accounts and the resulting gain or loss is included in operations.
Depreciation and amortization is computed over the estimated useful lives of the assets by straight-line and accelerated methods for financial reporting purposes as follows:
Years | ||||
Buildings and improvements |
5-40 | |||
Terminals and improvements |
7-30 | |||
Office equipment and furniture |
5-10 | |||
Machinery and equipment |
5-7 | |||
Transportation equipment |
3-7 |
For income tax purposes, depreciation is computed using statutory recovery methods.
Intangible Assets and Amortization
Intangible assets, consisting principally of deferred costs incurred in connection with debt agreements are amortized using the straight-line method over their estimated useful lives.
Amortization expense for the years ended March 31, 2014, 2013 and 2012 amounted to $313,000, $295,000 and $1,034,000, respectively.
8
Castle Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Accounting Policies (continued)
Taxes on Income
Deferred income taxes are provided on the differences between the financial reporting and income tax bases of assets and liabilities based upon statutory tax rates enacted for future periods.
The Company files its tax returns on a December 31 fiscal year, while it uses a March 31 fiscal year for financial reporting.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all investments purchased with an initial maturity of three months or less to be cash equivalents.
Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell.
Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of temporary cash investments and trade accounts receivable. The Companys cash investments are placed with high credit quality financial institutions and may exceed the amount of federal deposit insurance. Concentrations of credit risk with respect to trade receivables are with large institutions, governmental entities, businesses and homeowners. The Company reviews a customers credit history before extending credit. The Company establishes an allowance for possible losses based on factors surrounding the credit risk of specific customers, historical trends, general economic conditions and other information.
Concentration of Suppliers
The Company purchased 69% of oil inventories from three suppliers in fiscal year 2014 and 62% from four suppliers in fiscal year 2013. Management has determined that favorable pricing and greater assurance of available supply are available for large, regularly-scheduled purchases and believes there is no business vulnerability regarding these suppliers concentrations as the inventory is available from other sources.
9
Castle Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Accounting Policies (continued)
Uses of Estimates
In preparing the financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Risk Management and Financial Instruments
The Company uses derivative financial instruments to reduce its exposure to changes in commodity prices and interest rates. These instruments consist primarily of heating oil futures contracts traded on the New York Mercantile Exchange and interest rate swap agreements with major financial institutions. Management uses these financial instruments to reduce the risks of loss associated with adverse changes in commodity prices and interest rates. While these instruments are subject to the risk of loss from changes in commodity prices and interest rates, those losses would be offset by gains on the related assets and liabilities. The Company has established a control environment which includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities.
Futures contracts used to hedge inventories are treated as fair value hedges. Periodic changes in the market value of such contracts, as well as realized gains and losses, are included in cost of sales. Losses (gains) related to futures contracts that were recognized in the consolidated statements of income for the years ended March 31, 2014, 2013 and 2012 were $1,177,000, $(5,018,000) and $(2,306,000), respectively.
Futures contracts used to hedge heating oil sales commitments are reported as cash flow hedges, with periodic changes in market value reported as comprehensive income (loss). The gain (loss) reclassified from accumulated other comprehensive income (loss) is recorded in cost of sales. The gain (loss) for such contracts for the years ended March 31, 2014, 2013 and 2012 had no material impact on earnings.
The Company recognizes all derivatives as either assets or (liabilities) in the statement of financial position and measures those instruments at fair value. As of March 31, 2014 and 2013, the fair values of derivative instruments were included in accrued expenses. If the Company enters into futures contracts which do not qualify for hedge accounting, gains or losses arising from these transactions are included in cost of sales for oil futures contracts and interest expense for interest rate swaps.
At March 31, 2014 and 2013, the fair value of outstanding derivative instruments relating to inventory hedges was as follows:
2014 | 2013 | |||||||
Fair value hedges |
$ | (57,000 | ) | $ | (160,000 | ) | ||
|
|
|
|
10
Castle Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Accounting Policies (continued)
Risk Management and Financial Instruments (continued)
In addition, the Company had open derivatives (consisting of interest rate swaps and oil futures contracts) not qualifying for hedge treatment with aggregate values of $0 and $(947,000) at March 31, 2014 and 2013, respectively, which are included in accrued expenses.
Financial Accounting Standards Board (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 market prices used to value the Companys energy derivatives have been determined using the New York Mercantile Exchange (NYMEX) and independent third party prices. All derivative instruments were non-trading positions. The Companys positions in heating oil futures contracts are considered Level 1 inputs while positions in interest-rate swaps are considered Level 2 inputs.
Fair Value of Financial Instruments
The fair value of the Companys long-term debt is estimated based on the current rates offered to the Company for debt of the same remaining maturities with similar collateral requirements. There was no difference between the carrying values and fair values of the Companys long-term debt. The fair value of the Companys financial instruments, including cash and cash equivalents, accounts receivable, other current assets, and accounts payable approximate cost because of their short term maturities.
Revenue Recognition
All of the following must occur before the Company recognizes revenue: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred, or services have been rendered; (3) the price is fixed or determinable; and (4) collectability is reasonably assured.
11
Castle Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements
2. Property and Equipment
Major classifications of property and equipment are as follows:
March 31, |
2014 | 2013 | ||||||
Terminals and improvements |
$ | 34,200,000 | $ | 33,716,000 | ||||
Office equipment and furniture |
7,997,000 | 7,949,000 | ||||||
Transportation equipment |
5,492,000 | 5,344,000 | ||||||
Buildings and improvements |
4,994,000 | 4,744,000 | ||||||
Machinery and equipment |
2,323,000 | 2,209,000 | ||||||
Construction in progress |
226,000 | | ||||||
|
|
|
|
|||||
55,232,000 | 53,962,000 | |||||||
Less accumulated depreciation and amortization |
38,513,000 | 36,578,000 | ||||||
|
|
|
|
|||||
16,719,000 | 17,384,000 | |||||||
Land |
6,919,000 | 6,919,000 | ||||||
|
|
|
|
|||||
$ | 23,638,000 | $ | 24,303,000 | |||||
|
|
|
|
Depreciation and amortization expense, excluding amortization of deferred costs, for the years ended March 31, 2014, 2013 and 2012 amounted to $1,935,000, $1,920,000 and $1,902,000, respectively.
3. Notes Payable to Banks
The Company has a committed line of credit agreement with a consortium of banks through December 28, 2014. Under the agreement the Company may borrow up to $225,000,000 during its peak season of operations. Borrowings under this agreement are collateralized by accounts receivable, inventories, equipment, customer lists and other intangible assets. The agreement also provides for various financial ratios to be maintained, all of which the Company was in compliance with at March 31, 2014. At March 31, 2014 and 2013, direct borrowings were $121,000,000 and $107,000,000, respectively. The weighted average interest rate of borrowings at March 31, 2014 and 2013 was 3.63% and 3.58%, respectively. At March 31, 2014 and 2013, outstanding letters of credit were $3,875,000 and $3,500,000, respectively.
12
Castle Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements
4. Long-term Debt
Long-term debt consists of the following:
March 31, |
2014 | 2013 | ||||||
Mortgage payable to bank (a) |
$ | 7,500,000 | $ | 8,750,000 | ||||
Mortgage payable to bank (b) |
2,456,000 | 3,070,000 | ||||||
|
|
|
|
|||||
9,956,000 | 11,820,000 | |||||||
Less current maturities |
9,956,000 | 1,864,000 | ||||||
|
|
|
|
|||||
$ | | $ | 9,956,000 | |||||
|
|
|
|
(a) | The mortgage requires quarterly principal payments of $250,000, plus interest at three month LIBOR plus 2.75% through December 2014, at which time a balloon payment of $7,000,000 becomes due. The mortgage is collateralized by the Companys Port Morris Terminal and the agreement provides for certain financial ratios to be maintained, all of which the Company was in compliance with at March 31, 2014. |
(b) | The mortgage requires monthly payments of approximately $51,000 plus interest at one month LIBOR plus 4.50% interest through December 2014, at which time a balloon payment of $1,995,000 is due. The mortgage is secured by certain real property and by the assignment of the Companys lease interest in the mortgaged property. |
5. Accrued Expenses
Accrued expenses were as follows:
March 31, |
2014 | 2013 | ||||||
Deposits and deferred service contracts |
$ | 1,418,000 | $ | 1,097,000 | ||||
Income taxes |
5,361,000 | 6,321,000 | ||||||
Payroll and other taxes |
3,423,000 | 2,711,000 | ||||||
Compensation |
2,139,000 | 2,583,000 | ||||||
Sales and other discount reserves |
1,701,000 | 2,556,000 | ||||||
Professional fees |
289,000 | 1,024,000 | ||||||
Bonus accrual |
2,913,000 | 1,883,000 | ||||||
Charitable contributions |
| 2,300,000 | ||||||
Derivative financial liabilities |
57,000 | 1,107,000 | ||||||
Other |
2,119,000 | 1,070,000 | ||||||
|
|
|
|
|||||
$ | 19,420,000 | $ | 22,652,000 | |||||
|
|
|
|
13
Castle Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements
6. Income Taxes
The components of tax expense consist of the following:
Years ended March 31, |
2014 | 2013 | 2012 | |||||||||
Current: |
||||||||||||
Federal |
$ | 4,551,000 | $ | 7,316,000 | $ | (1,292,000 | ) | |||||
State and local |
1,773,000 | 3,218,000 | (405,000 | ) | ||||||||
|
|
|
|
|
|
|||||||
6,324,000 | 10,534,000 | (1,697,000 | ) | |||||||||
|
|
|
|
|
|
|||||||
Deferred: |
||||||||||||
Federal |
543,000 | (1,080,000 | ) | 2,948,000 | ||||||||
State and local |
318,000 | (635,000 | ) | 1,732,000 | ||||||||
|
|
|
|
|
|
|||||||
861,000 | (1,715,000 | ) | 4,680,000 | |||||||||
|
|
|
|
|
|
|||||||
$ | 7,185,000 | $ | 8,819,000 | $ | 2,983,000 | |||||||
|
|
|
|
|
|
A reconciliation of total income taxes computed by applying the 34% statutory federal income tax rate to income before income taxes for the years ended March 31, 2014, 2013 and 2012 is as follows:
Years ended March 31, |
2014 | 2013 | 2012 | |||||||||
Taxes at federal statutory rate |
$ | 5,148,000 | $ | 6,363,000 | $ | 2,050,000 | ||||||
State income taxes, net of federal tax benefit |
1,380,000 | 1,704,000 | 876,000 | |||||||||
Domestic activity production deduction |
(125,000 | ) | (313,000 | ) | (211,000 | ) | ||||||
Non-deductible business expenses |
153,000 | 156,000 | 159,000 | |||||||||
Other non-deductible expenses |
272,000 | 557,000 | | |||||||||
Other, including the effect of uncertain tax positions |
357,000 | 352,000 | 109,000 | |||||||||
|
|
|
|
|
|
|||||||
$ | 7,185,000 | $ | 8,819,000 | $ | 2,983,000 | |||||||
|
|
|
|
|
|
Differences between the effective tax rate and the federal statutory rate are primarily attributable to non-deductible business expenses, other non-deductible expenses and state and local taxes on income.
Deferred income taxes reflect the tax effect of temporary differences between carrying amounts of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets (liabilities) result from temporary differences and are as follows:
March 31, |
2014 | 2013 | ||||||
Deferred tax assets - short term: |
||||||||
Provision for possible losses and certain accruals |
$ | 5,148,000 | $ | 6,317,000 | ||||
Inventory capitalization adjustments |
22,000 | 47,000 | ||||||
|
|
|
|
|||||
$ | 5,170,000 | $ | 6,364,000 | |||||
|
|
|
|
|||||
Deferred tax assets (liabilities) - long term: |
||||||||
Reserves currently not deductible for tax purposes |
$ | 85,000 | $ | 84,000 | ||||
Property, plant and equipment |
(8,368,000 | ) | (8,700,000 | ) | ||||
|
|
|
|
|||||
$ | (8,283,000 | ) | $ | (8,616,000 | ) | |||
|
|
|
|
14
Castle Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
The Company follows the provisions of ASC 740, Income Taxes, which contemplates a single model to address accounting for uncertain tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the taxing authorities. As of March 31, 2014 and March 31, 2013, the Company has determined that there are no material unrecognized tax benefits. Interest and penalties, if any, would be recorded in the income tax provision in the year paid. For federal and state purposes, the Company has been audited through December 31, 2012 and 2008, respectively.
7. Related Party Transactions
Related party transactions for the years ended March 31, 2014, 2013 and 2012 are as follows:
(a) | The Company has a 19% minority investment of $342,000 in an affiliated insurance company which is included in other assets. The Company accounts for this investment using the cost method. There are no further obligations or guarantees associated with this investment. The affiliated insurance company, through a reinsurance agreement with an unrelated third party insurer, effectively insures the Company for all losses up to a predetermined limit for workers compensation, automobile and general liability exposures. Third-party insurance covers losses in excess of the predetermined limits. Insurance expense incurred in connection with the affiliated insurance company during the years ended March 31, 2014, 2013 and 2012, amounted to approximately $1,699,000, $1,825,000 and $1,900,000, respectively. |
(b) | Certain shareholders of the Company have loaned the Company funds under separate subordinated debt agreements. Balances at March 31, 2014 and 2013 were $7,000,000. The notes bear interest at 5.25% at March 31, 2014 and 4.25% at March 31, 2013, respectively, and are due in December 2014. The loans are subordinated to certain debt and notes payable to banks. Interest expense on these notes amounted to $368,000, $298,000 and $298,000 for the years ended March 31, 2014, 2013 and 2012, respectively |
(c) | In December 2013, the Company entered into an agreement with certain shareholders, whereby the Company purchased their shares of preferred and common stock for $10,700,000 of which $1,700,000 plus transaction expenses was paid in December 2013. Additional payments of $4,500,000 without interest are due in January and June 2015. Expenses related to the transaction amounted to $159,000. |
8. Benefit Plans
The Company has a qualified profit-sharing and savings plan that qualifies as a 401(k) plan under the Internal Revenue Code. The plans cover all eligible employees. Contributions to the profit-sharing plan, as determined by the Board of Directors, are discretionary but may not exceed 25% of annual compensation paid to each participant. Contributions to the savings plan require the Company to match half of participant contributions up to 4% of annual compensation paid to each participant. Contributions to the savings and profit sharing plans for the years ended March 31, 2014, 2013 and 2012 amounted to $680,000, $600,000 and $555,000, respectively.
15
Castle Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements
8. | Benefit Plans (continued) |
The Company participates in two multi-employer pension plans covering substantially all its unionized employees, as required under existing collective bargaining agreements. The Company is required to make future contributions at hourly rates, as specified in the collective bargaining agreements. The Company has no intention of taking any action that would result in any additional liability that might result from a withdrawal from the plans.
The following table reflects information with respect to these multi-employer plans as of the latest available valuation (December 31, 2013 in each case).
32 BJ North Pension Fund |
Local 553 Pension Fund | |||
Plan information: |
||||
EIN/pension plan no. |
13-1819138 | 13-6637826 | ||
Date of latest valuation |
12/31/2013 | 12/31/2013 | ||
2013 zone status (a) |
Red | Green | ||
2012 zone status (a) |
Red | Green | ||
2013 funded status |
78.6% | 90.9% | ||
2012 funded status |
77.4% | 92.0% | ||
Rehabilitation plan |
Implemented | N/A | ||
Surcharge imposed |
No | No | ||
Company information: |
||||
Contributions year ended March 31, 2014 |
$242,000 | $671,000 | ||
Contributions year ended March 31, 2013 |
$216,000 | $634,000 | ||
Expiration date of collective bargaining agreement |
1/31/2016 | 12/31/2016 |
(a) | Plans in the red zone are generally less than 65% funded; plans in the yellow zone are generally up to 80% funded and plans in the green zone are generally greater than 80% funded. The 32BJ North Pension Fund was classified as red because the Funds actuary is projecting a funding deficiency within ten years. |
Company contributions to the 32 BJ North Pension Fund and Local 553 Pension Fund were approximately 2% and 10%, respectively, based on the Funds December 31, 2012 Form 5500 (the latest available plan filing).
16
Castle Oil Corporation and Subsidiaries
Notes to Consolidated Financial Statements
9. | Commitments and Contingencies |
Commitments and contingencies for the year ended March 31, 2014 are as follows:
(a) | At March 31, 2014, future net minimum rental payments under operating leases for equipment and premises that have initial or remaining noncancelable terms in excess of one year are as follows: |
Years ending March 31, |
||||
2015 |
$ | 699,000 | ||
2016 |
699,000 | |||
2017 |
699,000 | |||
2018 |
699,000 | |||
2019 |
117,000 | |||
|
|
|||
$ | 2,913,000 | |||
|
|
Rent expense was $2,735,000, $2,610,000 and $2,893,000 for the years ended March 31, 2014, 2013 and 2012, respectively.
(b) | The Company is involved in various legal actions and claims arising in the ordinary course of its business. Management believes that all current litigations and claims will be resolved without any material effect on the Companys financial position. |
(c) | The Company has severance agreements whereby certain executives may be entitled to compensation if a triggering event occurs. |
10. Subsequent Events
The Company evaluated all events or transactions that occurred after March 31, 2014 through June 17, 2014, the date the financial statements were available to be issued. During the period, the Company did not have any material recognizable or unrecognizable subsequent events.
17