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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of report (Date of earliest event reported) December 15, 2006
STAR GAS PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 011-14129 06-1437793
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
2187 Atlantic Street, Stamford, CT 06902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 328-7310
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On December 15, 2006, Star Gas Partners, L.P., a Delaware partnership (the
"Partnership"), issued a press release announcing its financial results for its
fiscal fourth quarter ending September 30, 2006. A copy of the press release is
furnished within this report as Exhibit 99.1.
The information in this report is being furnished, and is not deemed as "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
and shall not be deemed incorporated by reference in any filings under the
Securities Act of 1933, as amended, unless specifically stated so therein.
ITEM 7.01. REGULATION FD DISCLOSURE
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit 99.1 A copy of the Star Gas Partners, L P. Press Release dated
December 15, 2006
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STAR GAS PARTNERS, L.P.
By: Kestrel Heat, LLC (General Partner)
By: /s/ Richard F. Ambury
------------------------------------------
Name: Richard F. Ambury
Title: Chief Financial Officer
Principal Financial & Accounting Officer
Date: December 15, 2006
Exhibit 99.1
Star Gas Partners, L.P. Reports Fiscal 2006 Unaudited Fourth Quarter
Results; Announces Delay in Filing Fiscal 2006 Form 10-K
STAMFORD, Conn.--(BUSINESS WIRE)--Dec. 15, 2006--Star Gas
Partners, L.P. (the "Partnership" or "Star") (NYSE: SGU), a home
energy distributor and services provider specializing in heating oil,
today announced unaudited financial results for its fiscal 2006 fourth
quarter, a non heating season period, and the twelve months period
ended September 30, 2006. The Partnership also announced that it would
delay the filing of its annual report on Form 10-K for the fiscal year
ended September 30, 2006, as the Partnership is assessing its
accounting treatment and disclosures relating to certain derivative
transactions under SFAS 133.
The requirements of SFAS 133 are very complex. If the Partnership
determines that it does not meet the requirements of SFAS 133, any
resulting adjustments would affect the timing of recognizing
unrealized gains and losses. These non-cash adjustments would not
impact the economics of the derivative transactions. At this time, the
Partnership has not determined if any adjustments are necessary.
Should the Partnership determine, after such assessment, that a change
to its accounting treatment of derivatives is required, such change
may require a restatement of its historical financial statements,
including the unaudited results reported today, and the amount of any
such restatement may be material. The Partnership does not expect that
any such restatement, if required, would have an effect on its
liquidity or business.
The following unaudited financial results of the Partnership for
the fourth quarter and fiscal year ended September 30, 2006 do not
reflect the impact of the outcome of the Partnership's review of its
accounting treatment and disclosures relating to certain derivative
transactions.
For the fiscal 2006 fourth quarter, Star reported a 0.5 percent
increase in total revenues to $151.5 million, compared to total
revenues of $150.7 million in the year-ago period, as the impact of
higher selling prices more than offset an 11.9 percent reduction in
home heating oil volume. Selling prices were higher during the quarter
due to the increase in the wholesale cost of home heating oil and
increased margins on products sold. The home heating oil volume
decline was due to net customer attrition and other factors. For the
fiscal 2006 fourth quarter, Star lost approximately 5,500 accounts
(net), or 1.2 percent of its home heating oil customer base, as
compared to the fiscal 2005 fourth quarter in which Star lost 15,800
accounts (net), or 3.2 percent of its home heating oil customer base.
Home heating oil per gallon margins for the fiscal 2006 fourth
quarter rose by 36.3 cents per gallon, versus the corresponding fiscal
2005 period. During the fourth quarter of fiscal 2006, Star purchased
inventory to be delivered in the first quarter of fiscal 2007 to take
advantage of the favorable prices in the spot delivery and futures
markets that existed at that time. Star hedged the price of the
physical product with a short futures position but did not qualify for
hedge accounting. In September 2006, the home heating oil market
declined by 28 cents per gallon, which resulted in an unrealized mark
to market gain on Star's short futures position in fiscal 2006, which
reduced product cost of goods sold by $6.4 million, or 21.4 cents per
gallon of home heating oil sold for the fiscal 2006 fourth quarter.
Conversely, Star's results and per gallon home heating oil margins for
the first quarter of fiscal 2007 (when the hedged oil will be
delivered) will be reduced by $6.4 million.
Star's service results improved to a $2.8 million profit in the
fiscal 2006 fourth quarter, compared to a profit of $1.1 million for
the year-earlier quarter.
Total operating expenses (delivery, branch, general and
administrative) decreased by $10.0 million, or 18.2 percent, to $45.0
million for the fiscal 2006 fourth quarter, as compared to $55.0
million for the prior year's quarter. Operating expenses were
favorably impacted by an estimated $0.6 million decrease in certain
variable operating expenses related to the decline in home heating oil
volume, a $1.6 million reduction in insurance expense, lower bad debt
expense of $3.8 million and a $3.1 million decline in legal and
professional expenses.
In the fiscal 2006 fourth quarter, the Partnership's operating
loss decreased by $21.5 million, to a $18.5 million loss, as compared
to an operating loss of $40.0 million for the fiscal 2005 fourth
quarter, due to the reduction in total operating costs (including
depreciation and amortization) of $11.0 million, an increase in net
service profitability of $1.7 million and an $8.7 million increase in
product gross profit.
For the fiscal 2006 fourth quarter, interest expense decreased
$2.4 million to $5.0 million, due to a lower principal amount in total
debt outstanding of approximately $111.9 million. Total debt declined
due to the Partnership's April 2006 recapitalization.
For the fiscal 2006 fourth quarter, the net loss decreased by
$25.3 million, to a $21.7 million loss, compared to a net loss of
$47.0 million for the three months ended September 30, 2005, primarily
due to a $21.5 million increase in operating income and lower interest
expense of $2.4 million.
For the fiscal 2006 fourth quarter, the EBITDA loss decreased
$20.5 million, to $10.9 million, as compared to an EBITDA loss of
$31.4 million for the three months ended September 30, 2005, due to a
reduction in total operating expenses of $10.0 million, an increase in
service and installation profitability of $1.7 million and an increase
in product gross profit of $8.7 million, which includes the mark to
market gain of $6.4 million. 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 provides additional
information for evaluating the Partnership's ability to make the
Minimum Quarterly Distribution. The Partnership is not required to
accrue the Minimum Quarterly Distribution until October 1, 2008.
Star Gas Partners Chief Executive Officer Joseph Cavanaugh,
stated, "In the fiscal fourth quarter, we achieved a significant
improvement in Star's financial results, highlighted by a 52 percent
reduction in the Partnership's operating loss during this non-heating
period. We are pleased with the improvement in profit margins, on top
of a mark to market hedging gain, as well as the declines in operating
and interest expense levels, which enhanced our results. Although net
customer attrition continues to have an adverse impact on our
business, we are seeing improvements in our customer base by employing
a marketing strategy that includes higher minimum profitability
standards, reduced advertising spending, and higher customer credit
scores. We have also demonstrated a better job over the past year in
retaining new homeowners when current heating oil customers move."
For fiscal 2006, Star achieved a 2.9 percent increase in revenues
to $1,296.5 million, compared to $1,259.5 million in fiscal 2005, as
increases in selling prices more than offset a decline in product
sales due to lower volume.
During fiscal 2006, home heating oil volume declined 97.4 million
gallons, or 20.0 percent, from 487.3 million gallons to 389.9 million
gallons due to 11.0 percent warmer temperatures, net customer
attrition of 6.6 percent and other factors. For fiscal 2006, Star lost
29,600 accounts (net) or 6.6 percent of its home heating oil customer
base, as compared to fiscal 2005 in which Star lost 35,100 accounts
(net) or 7.1 percent of its home heating oil customer base.
Excluding the impact of weather, we expect that home heating oil
volume for the fiscal 2007 first quarter and fiscal 2007 will be
substantially less than the comparable period in fiscal 2006 due to
net customer attrition, conservation and other factors. In addition,
we expect that home heating oil volume for the fiscal 2007 first
quarter will be adversely affected by warmer than normal temperatures
as from October 1 to December 12, 2006 temperatures in the New York
City area, which approximates our geographic areas of operations, were
12% warmer than normal. For the fiscal 2006 first quarter,
temperatures in our areas of operations were 2.4% warmer than normal.
Home heating oil per gallon margins for fiscal 2006 increased by
15.2 cents versus fiscal 2005, due largely to the increase in margins
realized on sales to both price protected accounts and variable priced
customers. The previously mentioned mark to market gain added 1.6
cents per gallon to fiscal 2006 margins.
Star's service results improved by $7.2 million in fiscal 2006, as
compared to fiscal 2005.
Total operating expenses (delivery, branch, general and
administrative) decreased by $48.9 million, or 17.8 percent, to $226.1
million for fiscal 2006. This decrease was due to lower bridge and
financing expenses of $10.9 million, a $6.0 million reduction in
marketing expenses, the receipt of $4.4 million in weather insurance
proceeds (which lowered operating expenses), a decrease in certain
variable operating expenses directly associated with the 20.0 percent
decline in home heating oil volume (estimated to be $15.2 million),
lower bad debt expense and collection cost of $4.7 million, $3.8
million lower compensation expense related to separation agreements
recorded in fiscal 2005 with former executives, a $5.6 million decline
in legal expenses related to defending the purported class action
lawsuits and exploring financing alternatives in fiscal 2005, $3.3
million less in Sarbanes-Oxley compliance costs and other expense
reductions of $1.6 million. These improvements were partially offset
by higher director's and officer's liability insurance expense of $0.7
million, $1.4 million of legal and professional expenses incurred in
fiscal 2006 relating to the exploration of our financial options, and
wage and benefit expenses of $4.4 million.
For fiscal 2006, operating income increased $131.2 million to
$29.4 million, as compared to an operating loss of $101.8 million in
fiscal 2005. This increase was due to the non-recurrence during fiscal
2006 of a $67.0 million goodwill impairment charge recorded in fiscal
2005, a $48.9 million decline in branch and general administrative
expenses, improvements in service results of $7.2 million, an increase
in product gross profit of $5.0 million and $3.1 million of lower
depreciation and amortization expense.
For fiscal 2006, Star recorded a $6.6 million loss on the early
redemption and conversion of its 10.25% senior notes in connection
with the recapitalization. In fiscal 2005, Star recorded a $42.1
million loss on the early redemption of certain notes in connection
with the sale of the propane segment.
For fiscal 2006, interest expense decreased $9.9 million, or 27.3
percent, to $26.3 million, as compared to $36.2 million for fiscal
2005. This decrease resulted from a lower principal amount in total
debt outstanding, including working capital, of approximately $142.5
million, which was offset in part by an increase in the Partnership's
weighted average interest rate of 1.2 percent.
For fiscal 2006, the net loss decreased by $24.3 million, to $1.7
million, as a result of a $177.6 million decrease in the loss from
continuing operations and a $4.6 million decline in the loss from
discontinued operations in the 2005 fiscal first quarter, which were
partially offset by the gains on the sale of discontinued operations
recorded in the fiscal 2005 first quarter of $157.6 million.
For fiscal 2006, EBITDA increased $163.6 million, to $55.2
million, as compared to an EBITDA loss of $108.4 million for fiscal
2005. This increase was due to the 15.2 cents increase in home heating
oil gross profit margins ($59.2 million), an improvement in service
results of $7.2 million, and a $48.9 million decline in operating
expenses, reduced in part by the impact of the reduction in home
heating oil volume ($54.3 million). The year-over-year comparison was
also favorably impacted by a change in loss on redemption in debt of
$35.5 million and the non-recurrence of a $67.0 million goodwill
impairment charge recorded in fiscal 2005. 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). Management
believes this information is of interest to investors as a
supplemental measure of the Partnership's operating performance and
provides additional information for evaluating the Partnership's
ability to make the Minimum Quarterly Distribution. The Partnership is
not required to accrue the Minimum Quarterly Distribution until
October 1, 2008.
REMINDER: Star Gas management will host a conference call and
webcast today at 11:00 a.m. (ET). Conference call dial-in is
888/882-0144 or 415/908-4742 (international callers). A webcast is
also available at www.star-gas.com/MediaList.cfm and at www.vcall.com
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 and by visiting Star's
website at www.star-gas.com.
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 accounts and retain existing
accounts, our ability to effect strategic acquisitions or redeploy
assets, the impact of litigation, the continuing impact of the
business process redesign project and our ability to address issues
related to that project, natural gas conversions, future union
relations and the outcome of current and future union negotiations,
the impact of current and future environmental, health and safety
regulations, customer creditworthiness, and marketing plans. All
statements other than statements of historical facts included in this
news release are 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 have been correct. 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/A for the
year ended September 30, 2005 and the Partnership's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 2006, 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
(unaudited)
(in thousands) Sept. 30, Sept. 30,
2006 2005
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 91,121 $ 99,148
Receivables, net of allowances of $6,532
and $8,433, respectively 87,393 89,703
Inventories 75,859 52,461
Prepaid expenses and other current assets 41,507 64,007
----------- -----------
Total current assets 295,880 305,319
----------- -----------
Property and equipment, net 42,377 50,022
Long-term portion of accounts receivables 3,513 3,788
Goodwill 166,522 166,522
Intangibles, net 61,007 82,345
Deferred charges and other assets, net 10,899 15,152
Long-term assets held for sale 1,010 -
----------- -----------
Total Assets $ 581,208 $ 623,148
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable $ 21,544 $ 19,780
Working capital facility borrowings - 6,562
Current maturities of long-term debt 96 796
Accrued expenses 76,441 56,580
Unearned service contract revenue 36,634 36,602
Customer credit balances 73,863 65,287
----------- -----------
Total current liabilities 208,578 185,607
----------- -----------
Long-term debt 174,056 267,417
Other long-term liabilities 25,249 25,016
Partners' capital (deficit)
Common unitholders 213,249 145,194
Subordinated unitholders - (8,930)
General partner (188) (3,949)
Accumulated other comprehensive income
(loss) (39,736) 12,793
----------- -----------
Total Partners' capital 173,325 145,108
----------- -----------
Total Liabilities and Partners' Capital $ 581,208 $ 623,148
=========== ===========
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per Three Months Ended Twelve Months Ended
unit data)
September 30, September 30,
------------------- -----------------------
2006 2005 2006 2005
--------- --------- ----------- -----------
Sales:
Product $105,923 $105,412 $1,109,332 $1,071,270
Installations and
service 45,573 45,287 187,180 188,208
--------- --------- ----------- -----------
Total sales 151,496 150,699 1,296,512 1,259,478
Cost and expenses:
Cost of product 74,674 82,901 819,415 786,349
Cost of installations
and service 42,746 44,199 189,214 197,430
Delivery and branch
expenses 41,579 48,173 205,037 231,581
Depreciation and
amortization expenses 7,569 8,564 32,415 35,480
General and
administrative
expenses 3,389 6,825 21,037 43,418
Goodwill impairment
loss - - - 67,000
--------- --------- ----------- -----------
Operating income
(loss) (18,461) (39,963) 29,394 (101,780)
Interest expense (5,003) (7,429) (26,288) (36,152)
Interest income 1,674 1,348 5,085 4,314
Amortization of debt
issuance costs (570) (612) (2,438) (2,540)
Loss on redemption of debt - - (6,603) (42,082)
--------- --------- ----------- -----------
Loss from continuing
operations before income
taxes (22,360) (46,656) (850) (178,240)
Income tax expense
(benefit) (681) 2,096 477 696
--------- --------- ----------- -----------
Loss from continuing
operations (21,679) (48,752) (1,327) (178,936)
Loss from discontinued
operations, net of taxes - - - (4,552)
Gain on sale of
discontinued operations,
net of taxes - 1,800 - 157,560
--------- --------- ----------- -----------
Loss before cumulative
effect of changes in
accounting principles (21,679) (46,952) (1,327) (25,928)
Cumulative effect of
changes in accounting
principles - change in
inventory pricing method - - (344)
------------------------------- -----------
Net loss $(21,679) $(46,952) $ (1,671) $ (25,928)
=============================== ===========
General Partner's interest
in net loss $ (87) $ (422) $ 218 $ (234)
--------- --------- ----------- -----------
Limited Partners' interest
in net loss $(21,592) $(46,530) $ (1,889) $ (25,694)
========= ========= =========== ===========
Basic and Diluted Income
(loss) per Limited
Partner Unit:
Continuing operations $ (0.28) $ (1.35) $ (0.03) $ (4.95)
Discontinued operations - - - (0.13)
Gain on sale of
discontinued operations - 0.05 - 4.36
--------- --------- ----------- -----------
Loss before cumulative
effect of changes in
accounting principles (0.28) (1.30) (0.03) (0.72)
Cumulative effect of
changes in accounting
principles - change in
inventory pricing method - - (0.01) 0.00
--------- --------- ----------- -----------
Net loss $ (0.28) $ (1.30) $ (0.04) $ (0.72)
=============================== ===========
--------- --------- ----------- -----------
Weighted average number of
Limited Partner units
outstanding 75,774 35,844 52,944 35,821
========= ========= =========== ===========
SUPPLEMENTAL INFORMATION
Earnings (loss) before interest, taxes, depreciation and
amortization from continuing operations (EBITDA)
The Partnership uses EBITDA as a measure of liquidity and it is
being included because the Partnership believes that it provides
investors and industry analysts with additional information to
evaluate the Partnership's ability to pay quarterly distributions.
EBITDA is not a recognized term under generally accepted accounting
principles ("GAAP") and should not be considered as an alternative to
net income/(loss) or net cash provided by operating activities
determined in accordance with GAAP. Because 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 or similarly
titled measures used by other companies. The following tables set
forth (i) the calculation of EBITDA and (ii) a reconciliation of
EBITDA, as so calculated, to cash provided by operating activities.
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF EBITDA
(unaudited)
Three Months Ended
September 30,
------------------------
(in thousands) 2006 2005
----------- -----------
Income (loss) from continuing operations $ (21,679) $ (48,752)
Plus:
Income tax expense (benefit) (681) 2,096
Amortization of debt issuance costs 570 612
Interest expense, net 3,329 6,081
Depreciation and amortization expense 7,569 8,564
----------- -----------
EBITDA $ (10,892) $ (31,399)
Add/(subtract)
Income tax expense 681 (2,096)
Interest expense, net (3,329) (6,081)
Provision for losses on accounts
receivable (205) 3,586
Unrealized (gain)/loss on derivative
instruments (5,097) 3,466
Gain on sales of fixed assets, net (152) (23)
Unit compensation expense - (81)
Change in operating assets and
liabilities 45,202 58,240
----------- -----------
Net cash provided by (used in)
operating activities $ 26,208 $ 25,612
=========== ===========
Three Months Ended
September 30,
------------------------
2006 2005
----------- -----------
Home heating oil gallons sold (millions) 30.2 34.2
SUPPLEMENTAL INFORMATION
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF EBITDA
(unaudited)
Twelve Months Ended
September 30,
----------------------------
(in thousands) 2006 2005
----------- -----------
Income (loss) from continuing
operations $ (1,327) $ (178,936)
Plus:
Income tax expense (benefit) 477 696
Amortization of debt issuance
costs 2,438 2,540
Interest expense, net 21,203 31,838
Depreciation and amortization
expense 32,415 35,480
----------- -----------
EBITDA $ 55,206 (a) $ (108,382)(b)
Add/(subtract)
Income tax expense (477) (696)
Interest expense, net (21,203) (31,838)
Provision for losses on accounts
receivable 6,105 9,817
Unrealized (gain)/loss on
derivative instruments (4,168) 2,144
Loss on redemption of debt 6,603 42,082
Gain on sales of fixed assets, net (956) (43)
Goodwill impairment charge - 67,000
Unit compensation expense - (2,185)
Change in operating assets and
liabilities (22,746) (32,814)
----------- -----------
Net cash provided by (used in)
operating activities $ 18,364 $ (54,915)
=========== ===========
(a) Includes $42.1 million related to early debt redemption and non-
cash goodwill impairment charge of $67.0 million.
(b) Includes a net non-cash charge of $6.6 million related to early
debt redemption.
Twelve Months Ended
September 30,
------------------------
2006 2005
----------- -----------
Home heating oil gallons sold (millions) 389.9 487.3
CONTACT: Star Gas Partners
Investor Relations, 203-328-7310
or
Jaffoni & Collins Incorporated
Robert Rinderman / Steven Hecht, 212-835-8500
SGU@jcir.com