2) Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements include the accounts of Star Gas Partners, L.P. 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 nine month period ended June 30, 2014, and June 30, 2013, 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, 2013.

Correction of Immaterial Errors

During the third quarter of fiscal year 2014, we recorded adjustments that reduce net income by $2.2 million ($3.7 million, excluding the related income tax benefit) to correct certain errors related to periods from 2002 through March 31, 2014. The errors include understatements of expenses for state sales and petroleum taxes (“other taxes”) and the related interest and penalties, and overstatements of installations and service sales. The errors were the result of certain control deficiencies that we identified during the quarter. See Item 4. of this Report for additional information concerning these deficiencies.

The impact of the error correction on our condensed consolidated statements of operations for the three months ended June 30, 2014 was an increase in delivery and branch expenses of $1.7 million, an increase to interest expense, net, of $1.4 million, and a reduction of installations and service sales of $0.6 million, offset by the related income tax benefit of $1.5 million. The impact of the error correction on our condensed consolidated statements of operations for the nine months ended June 30, 2014 was an increase in delivery and branch expenses of $1.7 million, an increase to interest expense, net, of $1.2 million, and a reduction of installations and service sales of $0.3 million, offset by the related income tax benefit of $1.3 million. The impact of the error correction on our June 30, 2014, condensed consolidated balance sheet was a decrease to current assets ($2.6 million) for other taxes, interest and penalties already paid and assets written off, and an increase to accrued expenses and other current liabilities ($1.1 million) for the amounts remaining to be paid.

Had these items been recorded timely, the impact would have been a reduction of $0.4 million, $0.3 million and $0.4 million to our reported net income of $29.9 million, $26.0 million and $24.3 million for the years ended September 30, 2013, 2012 and 2011, respectively. Further, net income of $52.2 million and $19.3 million for the three months ended March 31, 2014 and December 31, 2013 would have decreased by $0.1 million and $0.1 million, respectively. In addition, our total partners’ capital of $279.9 million as reported as of September 30, 2010 would have decreased by $1.0 million for errors impacting fiscal years 2002 through 2010.

These errors did not, individually or in the aggregate, result in a material misstatement of our previously issued consolidated financial statements for any period through March 31, 2014. The correction of these errors in the third quarter of fiscal year 2014 was significant to our results of operations for the three months ended June 30, 2014, but had no material effect on our results for the nine months ended June 30, 2014 and is not expected to have a material effect on our results for the full year ending September 30, 2014.

Reclassification

The accompanying June 30, 2013, consolidated statements of operations have been revised from their previous presentation to reclassify finance charge income for the three and nine months period of $1.7 million and $4.9 million respectively, and present it separately as an element of operating income. Previously, finance charge income was included in the caption interest income in the consolidated statements of operations. This reclassification was made in order to conform with common industry practice regarding the reporting of finance charge income in operating income, and had no impact on net income, financial position, and cash flows for any period. Interest expense, net consists of:


(in thousands)	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
Interest expense	$	(5,444	)	$	(3,547	)	$	(13,366	)	$	(10,998	)
Interest income		17			11			42			31

Interest expense, net	$	(5,427	)	$	(3,536	)	$	(13,324	)	$	(10,967	)

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.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The core principal of this standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This new guidance is effective for our annual reporting period beginning in the first quarter of fiscal 2018, with early adoption prohibited. The Partnership is currently evaluating the impact of adopting ASU No. 2014-09.