Star Gas Partners, L.P. Reports Fiscal 2008 Second Quarter Results
STAMFORD, Conn., May 07, 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 second quarter and the six-month period ended March 31, 2008.
Three months ended March 31, 2008, compared to three months ended March 31, 2007
The Partnership reported a 15.3 percent increase in total revenue to $665.3 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 169.4 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 slightly as product costs reached new highs on 13 occasions during the second quarter of fiscal 2008.
Operating income decreased by $33.7 million to $49.1 million, as a decrease in product gross profit of $19.2 million and an unfavorable change in the fair value of derivatives of $20.3 million was reduced by lower operating costs (including depreciation, amortization and net service) of $5.8 million.
Net income declined by $33.3 million to $41.6 million.
Adjusted EBITDA decreased by $13.9 million to $57.8 million, as the additional EBITDA provided from acquisitions was more than offset by the reduction in EBITDA attributable to the decline in home heating oil volume. 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 make the Minimum Quarterly Distribution until February 2009, for the quarter ending December 31, 2008.
Star Gas Partners Chief Executive Officer, Daniel P. Donovan, stated, "Home heating oil price records were set and reset 28 times during the first and second quarters of our fiscal year. We have experienced similar conditions in the past and, predictably, customers react by turning down the thermostat and seeking lower prices. There is always a lower price offer in the market and our employees are tasked with re-selling our customers on the value of the service we offer and, of course, responding appropriately to their price concerns.
"This is hard work and we are very proud of the job they have been doing. We have many competitors in each of our markets with most less than one percent our size. Lacking the resources to replace lost customers by acquiring other heating oil businesses, many of these smaller distributors are forced to use economically unsustainable price offers to retain or acquire new customers in times of market stress. We believe that the business retained or acquired in this way is of marginal value. Our preferred choice has been to fight as hard as we sensibly can through internal marketing efforts. We intend to continue pursuing an active acquisition program as another means of obtaining new accounts. Reflective of the market stress described above, our list of active acquisition prospects is longer than it has ever been. We will pursue the best of these opportunities aggressively. Our strong working capital position leaves us well prepared to do so," concluded Mr. Donovan.
Six months ended March 31, 2008, compared to six month ended March 31, 2007
The Partnership reported a 23.4 percent increase in total revenue to $1.1 billion, 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 282.5 million gallons, as the additional volume provided by acquisitions and slightly colder temperatures was more than offset by the effects of net customer attrition, conservation and other factors.
Home heating oil margins were lower by approximately 1 cent per gallon.
During the first half of fiscal 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 decreased by $12.3 million to $79.2 million, as a favorable change in the fair value of derivative instruments of $3.8 million was more than offset by an increase in total operating expenses (including depreciation, amortization and net service) of $4.5 million and a reduction in product gross profit of $11.6 million.
Net income declined by $12.9 million to $66.7 million.
Adjusted EBITDA decreased by $17.0 million to $77.1 million, as the additional EBITDA provided from acquisitions was more than offset by the reduction in EBITDA attributable to the impacts of the decline in home heating oil volume, lower per gallon margins and lower weather insurance benefits.
REMINDER: Star Gas management will host a free webcast open to the general public and a conference call on May 8, 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 March 31, 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
March 31, September 30,
(in thousands) 2008 2007
------------------------------------------ ------------- -------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 13,624 $ 112,886
Receivables, net of allowance of
$12,255 and $7,645, respectively 265,472 78,923
Inventories 64,473 85,968
Fair asset value of derivative
instruments 22,188 14,510
Prepaid expenses and other current
assets 37,220 28,216
------------- -------------
Total current assets 402,977 320,503
------------- -------------
Property and equipment, net 39,404 41,721
Long-term portion of accounts receivables 956 1,362
Goodwill 181,524 181,496
Intangibles, net 38,952 48,468
Deferred charges and other assets, net 7,314 8,554
------------- -------------
Total assets $ 671,127 $ 602,104
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable $ 21,888 $ 18,797
Revolving credit facility borrowings 48,016 -
Fair liability value of derivative
instruments - 5,312
Accrued expenses and other current
liabilities 68,671 65,444
Unearned service contract revenue 40,219 37,219
Customer credit balances 21,570 71,109
------------- -------------
Total current liabilities 200,364 197,881
------------- -------------
Long-term debt 173,848 173,941
Other long-term liabilities 13,439 13,951
Partners' capital
Common unitholders 299,264 232,895
General partner 156 (129)
Accumulated other comprehensive loss (15,944) (16,435)
------------- -------------
Total partners' capital 283,476 216,331
------------- -------------
Total liabilities and partners' capital $ 671,127 $ 602,104
============= =============
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) 2008 2007 2008 2007
---------------------------- --------- --------- ----------- ---------
Sales:
Product $620,916 $534,856 $1,021,956 $815,258
Installations and service 44,370 42,068 97,274 91,910
--------- --------- ----------- ---------
Total sales 665,286 576,924 1,119,230 907,168
Cost and expenses:
Cost of product 491,188 385,922 810,446 592,158
Cost of installations and
service 45,288 44,384 97,862 94,858
(Increase) decrease in the
fair value of derivative
instruments 1,813 (18,462) (15,940) (12,147)
Delivery and branch
expenses 66,802 68,652 124,754 115,146
Depreciation and
amortization expenses 6,862 7,316 13,870 14,688
General and administrative
expenses 4,193 6,260 9,039 10,948
--------- --------- ----------- ---------
Operating income 49,140 82,852 79,199 91,517
Interest expense (5,662) (5,136) (10,721) (10,244)
Interest income 1,401 1,579 2,853 3,373
Amortization of debt
issuance costs (585) (571) (1,155) (1,141)
--------- --------- ----------- ---------
Income before income taxes 44,294 78,724 70,176 83,505
Income tax expense 2,737 3,845 3,522 3,910
--------- --------- ----------- ---------
Net income $ 41,557 $ 74,879 $ 66,654 $ 79,595
========= ========= =========== =========
General Partner's
interest in net income 178 320 285 340
--------- --------- ----------- ---------
Limited Partners' interest
in net income $ 41,379 $ 74,559 $ 66,369 $ 79,255
========= ========= =========== =========
--------- --------- ----------- ---------
Basic and Diluted income per
Limited Partner Unit $ 0.55 $ 0.98 $ 0.88 $ 1.05
========= ========= =========== =========
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
March 31,
-------------------
(in thousands) 2008 2007
-------------------------------------------------- --------- ---------
Income from continuing operations $ 41,557 $ 74,879
Plus:
Income tax expense 2,737 3,845
Amortization of debt issuance cost 585 571
Interest expense, net 4,261 3,557
Depreciation and amortization 6,862 7,316
--------- ---------
EBITDA from continuing operations 56,002 90,168
(Increase) / decrease in the fair value of
derivative instruments 1,813 (18,462)
--------- ---------
Adjusted EBITDA (a) 57,815 71,706
Add / (subtract)
--------------------------------------------------
Income tax expense (2,737) (3,845)
Interest expense, net (4,261) (3,557)
Provision for losses on accounts receivable 5,147 2,653
Increase in weather insurance contract - 2,895
Change in operating assets and liabilities (75,513) (76,412)
--------- ---------
Net cash used in operating activities $(19,549) $ (6,560)
========= =========
Home heating oil gallons sold 169,365 195,055
(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)
Six Months Ended
March 31,
---------------------
(in thousands) 2008 2007
------------------------------------------------ ---------- ----------
Income from continuing operations $ 66,654 $ 79,595
Plus:
Income tax expense 3,522 3,910
Amortization of debt issuance cost 1,155 1,141
Interest expense, net 7,868 6,871
Depreciation and amortization 13,870 14,688
---------- ----------
EBITDA from continuing operations 93,069 106,205
(Increase) / decrease in the fair value of
derivative instruments (15,940) (12,147)
---------- ----------
Adjusted EBITDA (a) 77,129 94,058
Add / (subtract)
------------------------------------------------
Income tax expense (3,522) (3,910)
Interest expense, net (7,868) (6,871)
Provision for losses on accounts receivable 6,857 4,605
Increase in weather insurance contract - (4,305)
Change in operating assets and liabilities (217,837) (111,022)
---------- ----------
Net cash used in operating activities $(145,241) $ (27,445)
========== ==========
Home heating oil gallons sold 282,518 294,336
(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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