Star Gas Partners, L.P. Reports Fiscal 2008 Third Quarter Results
STAMFORD, Conn., Aug 06, 2008 (BUSINESS WIRE) -- Star Gas Partners, L.P. (the "Partnership" or "Star") (NYSE: SGU), a home energy distributor and services provider specializing in heating oil, today announced financial results for its fiscal 2008 third quarter and the nine-month period ended June 30, 2008.
Three months ended June 30, 2008, compared to three months ended June 30, 2007
The Partnership reported a 16.0 percent increase in total revenue to $258.1 million, as an increase in home heating oil selling prices was reduced by a decline in home heating oil volume. Home heating oil volume declined to 46.0 million gallons, as the additional volume provided by acquisitions was more than offset by the effects of warmer temperatures, net customer attrition, conservation and other factors.
Home heating oil per gallon margins increased despite product costs reaching new highs on 18 occasions during the third quarter of fiscal 2008.
Operating income increased by $20.2 million to $13.8 million, as a favorable change in the fair value of derivatives of $25.2 million was reduced by lower product gross profit of $3.8 million and higher operating costs (including depreciation, amortization and net service) of $1.2 million. While operating expenses increased due to an increase in the reserve for doubtful accounts ($3.0 million) and the additional expenses attributable to stand alone acquisitions ($2.2 million), the Partnership was able to reduce certain operating costs in response to the decline in home heating oil volume.
Net income increased by $20.1 million to $11.8 million.
The Adjusted EBITDA loss increased by $5.5 million to $9.5 million, as the impact of higher per gallon margins and an improvement in service profitability were more than offset by an increase in the bad debt reserve, warmer temperatures and conservation efforts by our customers. Adjusted EBITDA is a non-GAAP financial measure (see below reconciliation) that 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 provides additional information for evaluating the Partnership's ability to make the Minimum Quarterly Distribution. The Partnership is not required to pay the Minimum Quarterly Distribution until February 2009, for the quarter ending December 31, 2008.
Star Gas Partners Chief Executive Officer, Daniel P. Donovan, stated, "The extreme volatility in home heating oil prices continued through the third quarter and we hit record price levels 47 times through July 31, 2008. Prices have increased by almost $2.00 per gallon versus last year.
"Predictably, high prices have resulted in more price sensitivity among our customer base. In addition to seeking ways to conserve, more customers are open to, or are actively seeking, low price offers from our competition. We are fighting to retain this business while conscious of the need to improve cents-per-gallon gross profit margins as we prepare for the winter heating season. Margin management is crucial since a large portion of our operating costs, necessary to profitably serve our customers, are of a fixed nature. We must also ensure proper margins to pay for fuel for our fleet, pay interest on increased working capital requirements and to cover the bad debt expense expected with increased sales levels.
"We have been focusing our off-season efforts on seeking and making sound acquisitions, planning and executing marketing and operating strategies to maximize profitable growth, effectively managing customer communications and requests for the coming heating season and continuing to improve the various services that we offer to our valued consumers. We are maintaining our discipline in acquisition evaluations, in new account credit decisions, in margin management and in an ongoing effort to both collect receivables and retain existing customers.
"With heating oil prices where they are today, we enter the upcoming heating season with a solid balance sheet and ample liquidity - a key advantage given the tight credit environment. Our goal is to continue to manage our business effectively through this challenging environment and thus demonstrate that the resumption of quarterly distributions in February of 2009 is warranted," concluded Mr. Donovan.
Nine months ended June 30, 2008, compared to nine month ended June 30, 2007
The Partnership reported a 21.9 percent increase in total revenue to $1.4 billion, as an increase in home heating oil selling prices was reduced by a decrease in home heating oil volume. Home heating oil volume decreased to 328.5 million gallons, as the additional volume provided by acquisitions was more than offset by the effects of net customer attrition, conservation, slightly warmer temperatures and other factors.
During the nine months ended June 30, 2007, the Partnership recorded a benefit of $4.3 million under its weather insurance contract. The Partnership did not record any benefit under its weather insurance contract in fiscal 2008.
Operating income increased by $7.9 million to $93.0 million, as a favorable change in the fair value of derivative instruments of $29.0 million was reduced by an increase in total operating expenses (including depreciation, amortization and net service) of $5.7 million and a reduction in product gross profit of $15.4 million. Operating expenses rose largely due to a $5.0 million increase in the reserve for doubtful accounts, the additional expenses associated with stand-alone acquisitions and lower weather insurance benefits.
Net income increased by $7.2 million to $78.5 million.
Adjusted EBITDA decreased by $22.4 million to $67.6 million, as the additional EBITDA provided from acquisitions and slightly higher home heating oil margins was more than offset by the impacts of the decline in home heating oil volume, lower weather insurance benefits and an increase in the reserve for doubtful accounts.
REMINDER: Star Gas management will host a free webcast open to the general public and a conference call on August 7, 2008 at 11:00 a.m. (ET). The webcast is available at http://www.star-gas.com/MediaList.cfm. The conference call dial-in is 706-634-8769.
Star Gas Partners, L.P., is the nation's largest retail distributor of home heating oil. Additional information is available by obtaining the Partnership's SEC filings at www.sec.gov and by visiting Star's website at www.star-gas.com where unitholders may request a hard copy of Star's complete audited financial statements free of charge.
Forward Looking Information
This news release includes "forward-looking statements" which represent the Partnership's 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 home heating oil; 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; the continuing residual impact of the business process redesign project and our ability to address issues related to that project; 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 future environmental, health and safety regulations; the ability to attract and retain employees; customer creditworthiness; counterparty creditworthiness; marketing plans; and general economic conditions. All statements other than statements of historical facts included in this news release 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 the Partnership believes that the expectations reflected in such forward-looking statements are reasonable, it 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. Important factors that could cause actual results to differ materially from the Partnership's expectations ("Cautionary Statements") are disclosed in this news release and in the Partnership's Annual Report on Form 10-K for the year ended September 30, 2007 and its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008, including without limitation and in conjunction with the forward-looking statements included in this news release. 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, the Partnership undertakes 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 news release.
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, September 30,
(in thousands) 2008 2007
-------------------------------------------- ----------- -------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 90,925 $ 112,886
Receivables, net of allowance of $13,678
and $7,645, respectively 152,530 78,923
Inventories 55,253 85,968
Fair asset value of derivative instruments 59,887 14,510
Prepaid expenses and other current assets 19,966 28,216
----------- -------------
Total current assets 378,561 320,503
----------- -------------
Property and equipment, net 38,336 41,721
Long-term portion of accounts receivables 742 1,362
Goodwill 181,897 181,496
Intangibles, net 34,787 48,468
Deferred charges and other assets, net 6,967 8,554
----------- -------------
Total assets $ 641,290 $ 602,104
=========== =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable $ 15,815 $ 18,797
Fair liability value of derivative
instruments - 5,312
Accrued expenses and other current
liabilities 71,446 65,444
Unearned service contract revenue 36,878 37,219
Customer credit balances 32,246 71,109
----------- -------------
Total current liabilities 156,385 197,881
----------- -------------
Long-term debt 173,801 173,941
Other long-term liabilities 15,535 13,951
Partners' capital
Common unitholders 311,060 232,895
General partner 207 (129)
Accumulated other comprehensive loss (15,698) (16,435)
----------- -------------
Total partners' capital 295,569 216,331
----------- -------------
Total liabilities and partners' capital $ 641,290 $ 602,104
=========== =============
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------------
(in thousands, except per
unit data - unaudited) 2008 2007 2008 2007
-------------------------- --------- --------- ----------- -----------
Sales:
Product $212,229 $178,971 $1,234,185 $ 994,229
Installations and
service 45,838 43,481 143,112 135,391
--------- --------- ----------- -----------
Total sales 258,067 222,452 1,377,297 1,129,620
Cost and expenses:
Cost of product 174,979 137,922 985,425 730,080
Cost of installations
and service 40,451 40,624 138,313 135,482
Increase in the fair
value of derivative
instruments (30,043) (4,857) (45,983) (17,004)
Delivery and branch
expenses 47,231 43,771 171,985 158,917
Depreciation and
amortization expenses 6,703 7,234 20,573 21,922
General and
administrative
expenses 4,944 4,189 13,983 15,137
--------- --------- ----------- -----------
Operating income
(loss) 13,802 (6,431) 93,001 85,086
Interest expense (5,189) (5,037) (15,910) (15,281)
Interest income 2,131 2,953 4,984 6,326
Amortization of debt
issuance costs (592) (571) (1,747) (1,712)
--------- --------- ----------- -----------
Income (loss) before
income taxes 10,152 (9,086) 80,328 74,419
Income tax expense
(benefit) (1,695) (818) 1,827 3,092
--------- --------- ----------- -----------
Net income (loss) $ 11,847 $ (8,268) $ 78,501 $ 71,327
========= ========= =========== ===========
General Partner's
interest in net
income (loss) 51 (35) 336 305
--------- --------- ----------- -----------
Limited Partners' interest
in net income (loss) $ 11,796 $ (8,233) $ 78,165 $ 71,022
========= ========= =========== ===========
--------- --------- ----------- -----------
Basic and Diluted income
(loss) per Limited
Partner Unit $ 0.16 $ (0.11) $ 1.03 $ 0.94
========= ========= =========== ===========
Weighted average number of
Limited Partner units
outstanding:
Basic and Diluted 75,774 75,774 75,774 75,774
========= ========= =========== ===========
SUPPLEMENTAL INFORMATION
----------------------------------------------------------------------
Earnings (loss) before interest, taxes, depreciation and amortization
from continuing operations (EBITDA).
The Partnership uses EBITDA and adjusted EBITDA as measures of
liquidity and they are being included because the Partnership
believes that they provide investors and industry analysts with
additional information to evaluate the Partnership's ability to pay
quarterly distributions. EBITDA and adjusted EBITDA are not
recognized terms under generally accepted accounting principles
("GAAP") and should not be considered as an alternative to net
income/(loss) or net cash provided by/(used in) operating activities
determined in accordance with GAAP. Because EBITDA and adjusted
EBITDA as determined by the Partnership excludes some, but not all of
the items that affect net income/(loss), it may not be comparable to
EBITDA and adjusted EBITDA or similarly titled measures used by other
companies. The following tables set forth (i) the calculation of
EBITDA and adjusted EBITDA and (ii) a reconciliation of EBITDA and
adjusted EBITDA, as so calculated, to cash provided by/(used in)
operating activities.
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
(unaudited)
Three Months Ended
June 30,
-------------------
(in thousands) 2008 2007
---------------------------------------------- --------- ---------
Income (loss) from continuing operations $ 11,847 $ (8,268)
Plus:
Income tax benefit (1,695) (818)
Amortization of debt issuance cost 592 571
Interest expense, net 3,058 2,084
Depreciation and amortization 6,703 7,234
--------- ---------
EBITDA from continuing operations 20,505 803
(Increase) / decrease in the fair value of
derivative instruments (30,043) (4,857)
--------- ---------
Adjusted EBITDA (a) (9,538) (4,054)
Add / (subtract)
----------------------------------------------
Income tax benefit 1,695 818
Interest expense, net (3,058) (2,084)
Provision for losses on accounts receivable 4,131 858
Decrease in weather insurance contract
receivable - 4,305
Decrease in accounts receivables 109,025 87,900
Decrease (increase) in inventories 9,366 (10,239)
Increase in customer credit balances 10,590 13,158
Change in other operating assets and
liabilities 4,685 (7,736)
--------- ---------
Net cash provided by operating activities $126,896 $ 82,926
========= =========
Home heating oil gallons sold 45,958 56,926
(a) Adjusted EBITDA is calculated as earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges. Management believes the presentation of this measure is relevant and useful because it allows investors to view the Partnership's performance in a manner similar to the method management uses, and makes it easier to compare its results with other companies that have different financing and capital structures. In addition, this measure is consistent with the manner in which the Partnership's debt covenants in its material debt agreements are calculated and investors measure its overall performance and liquidity, including its ability to pay quarterly equity distributions, service its long-term debt and other fixed obligations and fund its capital expenditures and working capital requirements. This method of calculating Adjusted EBITDA may not be consistent with that of other companies and should be viewed in conjunction with measurements that are computed in accordance with GAAP.
SUPPLEMENTAL INFORMATION
----------------------------------------------------------------------
Earnings (loss) before interest, taxes, depreciation and amortization
from continuing operations (EBITDA).
The Partnership uses EBITDA and adjusted EBITDA as measures of
liquidity and they are being included because the Partnership
believes that they provide investors and industry analysts with
additional information to evaluate the Partnership's ability to pay
quarterly distributions. EBITDA and adjusted EBITDA are not
recognized terms under generally accepted accounting principles
("GAAP") and should not be considered as an alternative to net
income/(loss) or net cash provided by/(used in) operating activities
determined in accordance with GAAP. Because EBITDA and adjusted
EBITDA as determined by the Partnership excludes some, but not all of
the items that affect net income/(loss), it may not be comparable to
EBITDA and adjusted EBITDA or similarly titled measures used by other
companies. The following tables set forth (i) the calculation of
EBITDA and adjusted EBITDA and (ii) a reconciliation of EBITDA and
adjusted EBITDA, as so calculated, to cash provided by/(used in)
operating activities.
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
(unaudited)
Nine Months Ended
June 30,
-------------------
(in thousands) 2008 2007
---------------------------------------------- --------- ---------
Income from continuing operations $ 78,501 $ 71,327
Plus:
Income tax expense 1,827 3,092
Amortization of debt issuance cost 1,747 1,712
Interest expense, net 10,926 8,955
Depreciation and amortization 20,573 21,922
--------- ---------
EBITDA from continuing operations 113,574 107,008
(Increase) / decrease in the fair value of
derivative instruments (45,983) (17,004)
--------- ---------
Adjusted EBITDA (a) 67,591 90,004
Add / (subtract)
----------------------------------------------
Income tax expense (1,827) (3,092)
Interest expense, net (10,926) (8,955)
Provision for losses on accounts receivable 10,988 5,463
Increase in accounts receivables (83,976) (27,676)
Decrease in inventories 30,895 16,971
Increase in customer credit balances (38,960) (29,117)
Change in other operating assets and
liabilities 7,870 11,883
--------- ---------
Net cash provided by (used in) operating
activities $(18,345) $ 55,481
========= =========
Home heating oil gallons sold 328,476 351,262
(a) Adjusted EBITDA is calculated as earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges. Management believes the presentation of this measure is relevant and useful because it allows investors to view the Partnership's performance in a manner similar to the method management uses, and makes it easier to compare its results with other companies that have different financing and capital structures. In addition, this measure is consistent with the manner in which the Partnership's debt covenants in its material debt agreements are calculated and investors measure its overall performance and liquidity, including its ability to pay quarterly equity distributions, service its long-term debt and other fixed obligations and fund its capital expenditures and working capital requirements. This method of calculating Adjusted EBITDA may not be consistent with that of other companies and should be viewed in conjunction with measurements that are computed in accordance with GAAP.
SOURCE: Star Gas Partners, L.P.
Star Gas Partners Investor Relations, 203-328-7310 or Jaffoni & Collins Incorporated Robert Rinderman / Steven Hecht, 212-835-8500 SGU@jcir.com
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