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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) May 10, 2007
STAR GAS PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 001-14129 06-1437793
(State or other jurisdiction (Commission File Number) (IRS Employer
of 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 May 10, 2007, Star Gas Partners, L.P., a Delaware partnership (the
"Partnership"), issued a press release announcing its financial results for its
fiscal second quarter ending March 31, 2007. 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
May 10, 2007
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: May 10, 2007
Exhibit 99.1
Star Gas Partners, L.P. Reports Fiscal 2007 Second Quarter Results
STAMFORD, Conn.--(BUSINESS WIRE)--May 10, 2007--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 2007 second quarter and the
six-month period ended March 31, 2007.
Three months ended March 31, 2007, compared to three months ended
March 31, 2006
The Partnership reported a 7.0 percent increase in total revenue
to $576.9 million due to an increase in home heating oil volume of 6.9
percent. The home heating oil volume increase was due to 14.1 percent
colder temperatures, reduced by net customer attrition. For the twelve
months ended March 31, 2007, Star's net customer attrition rate was
5.0 percent, which compares favorably to 6.6 percent and 7.1 percent
for fiscal 2006 and fiscal 2005, respectively. For the fiscal 2007
second quarter, Star lost approximately 5,300 accounts (net), or 1.3
percent of its home heating oil customer base, as compared to the
fiscal 2006 second quarter in which Star lost 10,500 accounts (net),
or 2.4 percent of its home heating oil customer base.
Home heating oil per gallon margins rose by 6.8 cents per gallon
due largely to an increase in the margins realized on sales to
variable priced customers. The Partnership is not expecting that the
6.8 cent per gallon increase in per gallon margins will continue for
the remainder of fiscal 2007. The net service and installation results
improved by $2.0 million to a $2.3 million loss as the Partnership
continues to control its service department costs and increase service
billings.
Total operating expenses (delivery, branch, general and
administrative) increased by $11.0 million, or 17.2 percent, to $74.9
million. This change was due to an increase in operating costs of $3.7
million, or 5.5 percent, primarily due to the 6.9 percent increase in
home heating oil volume and a comparative quarterly increase of $7.3
million relating to Star's weather insurance contract. Due to the warm
temperatures experienced in November and December 2006, the
Partnership recorded $7.2 million under its weather insurance contract
at December 31, 2006 in accordance with the Emerging Issues Task Force
Bulletin 99-2, "Accounting for Weather Derivatives." Temperatures in
January and February 2007 were colder than the base temperature under
the contract and the Partnership lowered the expected proceeds under
the contract, which increased operating expenses by $2.9 million.
During the fiscal 2006 second quarter, temperatures were warm and the
Partnership received $4.4 million of weather insurance proceeds, which
reduced operating costs. As a result, the comparative period change in
operating expenses relating to weather insurance was $7.3 million.
The change in fair value of derivative instruments during the
fiscal 2007 second quarter resulted in the recording of an $18.5
million net credit due to the expiration of certain hedged positions
($13.8 million) and an increase in the market value of unexpired
hedges ($4.7 million). In the fiscal 2006 second quarter, the change
in fair value of derivative instruments also resulted in an $11.2
million net credit due to the expiration of certain hedged positions
($6.2 million) and an increase in the market value of unexpired hedges
($5.0 million).
Operating income increased $20.6 million to $82.9 million, as an
increase in product gross profit of $21.7 million, a reduction in net
service and installation expense of $2.0 million, a favorable change
in the impact of derivative instruments of $7.2 million and lower
depreciation and amortization of $0.6 million were reduced by a
volume-driven $3.7 million increase in operating costs and the
comparable period change in weather insurance of $7.3 million.
Interest expense decreased $2.8 million to $5.1 million. Total
debt outstanding declined by $124.3 million due to the Partnership's
recapitalization ($92.5 million) that was completed on April 28, 2006,
and lower working capital borrowings ($31.5 million). Interest income
increased by $0.7 million to $1.6 million due to higher invested cash
balances.
Income tax expense increased by $3.4 million to $3.8 million and
represents certain state income tax, alternative minimum federal tax
and capital taxes. The $3.4 million increase is due to the increase in
2007's estimated taxable income by jurisdiction, versus 2006.
Net income increased $20.8 million to $74.9 million, as a $20.6
million increase in operating income and lower net interest expense of
$3.6 million were reduced by an increase in income tax expense of $3.4
million.
EBITDA increased $20.0 million to $90.2 million, as the impact of
the additional volume sold and higher margins resulted in an increase
in EBITDA of $20.1 million and a $7.2 million increase relating to the
change in fair value of derivative instruments was reduced by $7.3
million due to the difference arising in weather insurance. 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 make the Minimum Quarterly Distribution until February
2009, for the quarter ending December 31, 2008.
Star Gas Partners Chief Executive Officer Joseph P. Cavanaugh,
stated, "We continue to reap the benefits of Star's 2006
recapitalization as well as incremental improvement in our ongoing
battle against customer attrition and focus on customer retention
during the quarter. We are pleased with the recent success of our
acquisition program as we have completed three acquisitions since
January 1, 2007 and are continuing to evaluate several additional
candidates. At March 31, 2007, we had over $179.7 million of working
capital and are considering various alternatives for the use of our
excess liquidity, primarily the purchase of additional home heating
oil distributors."
Mr. Cavanaugh, who is retiring as Chief Executive Officer of the
Partnership at the end of May, added, "It has been a privilege to work
with the enthusiastic and loyal employees here at Star Gas. The
transition to our incoming CEO, Dan Donovan, will be a seamless one,
and I am confident that Dan will provide great leadership as his
skills and experience are perfect for leading Star forward."
Six months ended March 31, 2007, compared to six month ended March
31, 2006
The Partnership experienced a 4.9 percent decrease in revenues to
$907.2 million, as a decline in volume was partially reduced by an
increase in selling prices.
Home heating oil volume declined 19.4 million gallons, or 6.2
percent, to 294.3 million gallons. The home heating oil volume decline
was primarily due to net customer attrition of 5.0 percent for the
twelve months ended March 31, 2007, as temperatures were less than 1.0
percent colder. Star lost 9,400 accounts (net), or 2.3 percent of its
home heating oil customer base, as compared to the six months ended
March 31, 2006 in which the Partnership lost 17,700 accounts (net), or
4.0 percent of its home heating oil customer base. This reduction in
net losses of 8,300 accounts was due to a reduction in gross customer
losses of 9,200 accounts, offset by lower gross customer gains of 900
accounts.
Home heating oil per gallon margins increased by 4.5 cents due
largely to the increase in margins realized on sales to variable
priced customers. The net service and installation results improved by
$3.6 million.
Total operating expenses (delivery, branch, general and
administrative) decreased by $3.6 million, or 2.8 percent, to $126.1
million largely due to a reduction in legal and professional expenses.
The change in fair value of derivative instruments resulted in the
recording of a $12.1 million net credit due to the expiration of
certain hedged positions ($11.3 million) and an increase in market
value for unexpired hedges ($0.8 million). The change in fair value of
derivative transactions resulted in a $29.3 million net charge during
the first half of fiscal 2006 due to the expiration of certain hedged
positions ($27.9 million) and a decrease in market value for unexpired
hedges ($1.4 million).
Operating income increased $49.7 million to $91.5 million. The
majority of this increase relates to the changes in the fair value of
derivative instruments of $41.5 million. The balance of the change, or
$8.2 million, was due to lower operating costs including net service
and installation totaling $7.2 million, and lower depreciation and
amortization expense of $1.7 million, partially offset by a decrease
in product gross profit of $0.7 million.
Interest expense decreased by $5.3 million due to the decline in
average debt outstanding. Total debt outstanding declined by $112.4
million due to the recapitalization ($92.5 million) and lower working
capital borrowings ($19.4 million). Interest income increased by $1.7
million to $3.4 million, due to higher invested cash balances.
Income tax expense increased by $3.2 million to $3.9 million.
Income tax expense increased due to the increase in 2007's estimated
taxable income by jurisdiction versus 2006.
Net income increased by $53.9 million to $79.6 million, due to a
$49.7 million increase in operating income and lower net interest
expense of $6.9 million, reduced by higher income tax expense of $3.2
million.
EBITDA increased $48.0 million to $106.2 million, of which $41.5
million relates to the change in fair value of derivative instruments
and $6.5 million is largely due to lower operating costs. 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).
REMINDER: Star Gas management will host a conference call and
webcast today at 11:00 a.m. (ET). Conference call dial-in is
800/263-9163 or 212/676-5380 (international callers). A webcast is
also available at www.star-gas.com 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; anticipated proceeds from weather insurance; 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 effect strategic acquisitions or redeploy underperforming
assets; the impact of litigation; the ongoing impact of the business
process redesign project at the heating oil segment 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
for the year ended September 30, 2006 and its Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2007, 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
March 31, September
30,
(in thousands) 2007 2006
- --------------------------------------------- ----------- -----------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 59,715 $ 91,121
Receivables, net of allowance of $9,811
and $6,532, respectively 200,142 87,393
Inventories 48,814 75,859
Fair asset value of derivative instruments 4,030 3,766
Weather insurance contract 4,305 -
Prepaid expenses and other current assets 32,749 37,741
----------- -----------
Total current assets 349,755 295,880
----------- -----------
Property and equipment, net 40,881 42,377
Long-term portion of accounts receivables 2,600 3,513
Goodwill 166,926 166,522
Intangibles, net 51,499 61,007
Deferred charges and other assets, net 9,694 10,899
Long-term assets held for sale 648 1,010
----------- -----------
Total assets $ 622,003 $ 581,208
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable $ 21,725 $ 21,544
Fair liability value of derivative
instruments 3,523 13,790
Current maturities of long-term debt 49 96
Accrued expenses and other current
liabilities 74,083 62,651
Unearned service contract revenue 39,079 36,634
Customer credit balances 31,588 73,863
----------- -----------
Total current liabilities 170,047 208,578
----------- -----------
Long-term debt 173,954 174,056
Other long-term liabilities 25,082 25,249
Partners' capital (deficit)
Common unitholders 274,073 194,818
General partner 47 (293)
Accumulated other comprehensive loss (21,200) (21,200)
----------- -----------
Total partners' capital 252,920 173,325
----------- -----------
Total liabilities and partners' capital $ 622,003 $ 581,208
=========== ===========
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) 2007 2006 2007 2006
- ---------------------------- --------- ---------- --------- ----------
(restated) (restated)
Sales:
Product $534,856 $495,797 $815,258 $854,666
Installations and service 42,068 43,324 91,910 98,836
--------- ---------- --------- ----------
Total sales 576,924 539,121 907,168 953,502
Cost and expenses:
Cost of product 385,922 368,588 592,158 630,868
Cost of installations and
service 44,384 47,661 94,858 105,356
Change in the fair value
of derivative instruments (18,462) (11,230) (12,147) 29,333
Delivery and branch
expenses 68,988 57,917 115,820 116,915
Depreciation and
amortization expenses 7,316 7,924 14,688 16,409
General and administrative
expenses 5,924 6,001 10,274 12,795
--------- ---------- --------- ----------
Operating income 82,852 62,260 91,517 41,826
Interest expense (5,136) (7,958) (10,244) (15,498)
Interest income 1,579 849 3,373 1,707
Amortization of debt
issuance costs (571) (642) (1,141) (1,273)
--------- ---------- --------- ----------
Income before income taxes
and cumulative effect of
change in accounting
principles 78,724 54,509 83,505 26,762
Income tax expense 3,845 440 3,910 690
--------- ---------- --------- ----------
Income before cumulative
effect of change in
accounting principles 74,879 54,069 79,595 26,072
Cumulative effect of change
in accounting principles
- change in inventory
pricing method - - - (344)
--------- ---------- --------- ----------
Net income $ 74,879 $ 54,069 $ 79,595 $ 25,728
========= ========== ========= ==========
General Partner's
interest in net income 320 488 340 229
--------- ---------- --------- ----------
Limited Partners' interest
in net income $ 74,559 $ 53,581 $ 79,255 $ 25,499
========= ========== ========= ==========
Basic and diluted income per
Limited Partner Unit:
Net income before
cumulative effect of
change in accounting
principles $ 0.98 $ 1.49 $ 1.05 $ 0.72
--------- ---------- --------- ----------
Net income $ 0.98 $ 1.49 $ 1.05 $ 0.71
========= ========== ========= ==========
Weighted average number of
Limited Partner units
outstanding:
Basic 75,774 35,903 75,774 35,903
========= ========== ========= ==========
Diluted 75,774 35,903 75,774 35,903
========= ========== ========= ==========
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
Three Months Ended
March 31,
---------------------
2006
(in thousands) 2007 (restated)
---------- ----------
Income (loss) from continuing operations $74,879 $54,069
Plus:
Income tax expense 3,845 440
Amortization of debt issuance costs 571 642
Interest expense, net 3,557 7,109
Depreciation and amortization expense 7,316 7,924
---------- ----------
EBITDA(a) $90,168 $70,184
Add/(subtract)
Income tax expense (3,845) (440)
Interest expense, net (3,557) (7,109)
Provision for losses on accounts receivable 2,653 2,482
Change in fair value of derivative
instruments (18,462) (11,230)
(Gain) loss on sales of fixed assets, net (92) (878)
(Increase) decrease in weather insurance
contract 2,895 --
Change in operating assets and liabilities (76,320) (19,822)
---------- ----------
Net cash used in operating activities ($6,560) $33,187
========== ==========
Three Months Ended
March 31,
---------------------
2007 2006
---------- ----------
Home heating oil gallons sold (millions) 195.1 182.5
(a) EBITDA was increased for the change in fair value of
derivative instruments by $18.5 million and $11.2 million,
respectively, for the three months ended March 31, 2007 and March 31,
2006.
SUPPLEMENTAL INFORMATION
- ----------------------------------------------------------------------
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF EBITDA
Six Months Ended
March 31,
-----------------------
2006
(in thousands) 2007 (restated)
----------- -----------
Income (loss) from continuing operations $79,595 $26,072
Plus:
Income tax expense 3,910 690
Amortization of debt issuance costs 1,141 1,273
Interest expense, net 6,871 13,791
Depreciation and amortization expense 14,688 16,409
----------- -----------
EBITDA(a) $106,205 $58,235
Add/(subtract)
Income tax expense (3,910) (690)
Interest expense, net (6,871) (13,791)
Provision for losses on accounts
receivable 4,605 4,459
Change in the fair value of derivative
instruments (12,147) 29,333
(Gain) loss on sales of fixed assets, net (339) (451)
Increase in weather insurance contract (4,305) --
Change in operating assets and liabilities (110,683) (157,346)
----------- -----------
Net cash used in operating activities ($27,445) ($80,251)
=========== ===========
Six Months Ended
March 31,
-----------------------
2007 2006
----------- -----------
Home heating oil gallons sold (millions) 294.3 313.7
(a) EBITDA was increased for the change in fair value of
derivative instruments by $12.1 million for the six months ended March
31, 2007 and was reduced by $29.3 million for the six months ended
March 31, 2006.
CONTACT: Star Gas Partners
Investor Relations
203-328-7310
or
Jaffoni & Collins Incorporated
Robert Rinderman / Steven Hecht, 212-835-8500
SGU@jcir.com