Appendices to
PRELIMINARY REPORT TO
THE SPECIAL COMMITTEE OF GAS
A.G. EDWARDS & SONS, INC.
INVESTMENT BANKING
April 28, 1998
TABLE OF CONTENTS
Appendices
----------
Overview of Oil...................................... A
Overview of Gas...................................... B
Pro Forma Ownership Analysis......................... C
Premium Paid Analysis................................ D
Exchange Ratio Analysis.............................. E
Transaction Multiple Analysis........................ F
Relative Contribution Analysis....................... G
Accretion/Dilution Analysis.......................... H
Public Company Analysis.............................. I
Discounted Cash Flow Analysis........................ J
Capital Structure Analysis........................... K
PaineWebber Models as of 4/24/98..................... L
OVERVIEW OF OIL
[_] Oil is the largest retail distributor of home heating oil in the United
States, serving approximately 350,000 customers in the Northeast and Mid-
Atlantic states, including the metropolitan areas of Baltimore, Boston, New
York City and Washington, D.C.
[_] Since 1979 Oil has been the principal consolidator in the industry, having
acquired 188 retail heating oil distributors. As a result of these
acquisitions, heating oil volume sold has increased from 59.4 million
gallons in 1980 to 410.3 million gallons in 1997.
[_] Despite Oil's size, its customer base represents only approximately 5% of
the residential home heating oil customers in the Northeast, uniquely
positioning the company to continue its strategy of growth through
acquisitions.
[_] Oil's strongest competitive advantage is clearly its size, particularly in
relation to its competitors. Oil's size provides it significant
opportunities not afforded to most of the industry's small, local, family-
owned businesses. These opportunities include attracting and retaining a
professional management team, accessing and maintaining the latest
developments in computer and communications technology, and achieving
significant operating and marketing efficiencies.
[_] Oil's primary goals currently include: reducing operating costs and
increasing profitability; reducing customer attrition through a focus on
attracting new customers (better structured, upgraded sales force, brand
image, cross marketing agreements) and retaining existing customers
(improving service and having all employees function as salespeople); and,
given the financial wherewithal, exploit its ability to further consolidate
the home heating oil market.
Page 1
Overview of Oil
Summary Financial Analysis
($ in thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------------
State of Incorporation: Minnesota Market Price (4/22/98): $1.625
Headquarters: Stamford, CT 52-Week High - Low: $3.875 - 1.438
Auditors: KPMG Peat Marwick LLP Shares Outstanding: 26,563 (a)
Primary Exchange: NASDAQ Most Recent Fiscal Year End: 12/31/97
Primary Area of Focus: Northeast and Mid-Atlantic U.S.
Selected Data
- --------------------------------------------------------------------------------------------------------------------
Total Net Loss Loss Distributable DCF Acquisition
Year Revenues EBITDA (c) to Common per Share Cash Flow (d) per Share CapEx.
- -----------------------------------------------------------------------------------------------------------------------------------
1994 $ 546,677 $ 55,387 ($7,776) ($0.36) $ 28,020 $ 1.29 $ 26,411
1995 609,507 56,753 (26,742) (1.06) 14,461 0.57 26,438
1996 608,161 42,070 (30,704) (1.20) 6,158 0.24 28,493
1997 548,141 36,010 (27,543) (1.06) 842 0.03 16,252
Proj- 1998 (e) 38,500
Proj- 1999 (e) 51,657
- --------------------------------------------------------------------------
BOOK CAPITALIZATION
- --------------------
(12/31/97)
-----------
Total Debt (b) $ 331,004
Total Stockholders' Equity (177,033)
-----------
TOTAL $ 153,971
===========
ESTIMATED FIRM VALUE
- --------------------
Market Value of Total Debt (b) $ 314,473
Market Value of Common (f) 43,347
-----------
TOTAL $ 357,819
===========
Less: Cash and Equivalents (g) 11,740
NET FIRM VALUE $ 346,079
===========
MULTIPLE ANALYSIS
- -----------------
CURRENT
Net Firm Value/ 97A EBITDA: 9.6X
Net Firm Value/ 98E EBITDA: 9.0
Net Firm Value/ 99E EBITDA: 6.7
PROPOSED $3.15 PRICE
Net Firm Value/ 97A EBITDA: 11.1X
Net Firm Value/ 98E EBITDA: 10.3
Net Firm Value/ 99E EBITDA: 7.7
- --------------------------------------------------------------------------
- ------------------------------------------
(a) Includes Class A, B and C shares.
(b) Includes debt and redeemable and exchangeable preferred stock.
(c) EBITDA is defined as gross profit less SG&A expenses and direct delivery
expense.
(d) Represents EBITDA less interest expense, maintenance capital expenditures,
and cash taxes.
(e) Source: management's projections; 1998 EBITDA is before acquisitions,
adjusted for actual 1Q results. See pages 9 to 13.
(f) Calculated based on (Class A + Class C* market price) + [(Class B*
($17.50+$0.2763)]
(g) Includes balance in the cash collateral account which is required by the
company's credit agreement.
Page 2
OVERVIEW OF OIL
SELECTED FINANCIAL DATA
($ IN THOUSANDS)
====================================================================================================================
HISTORICAL YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1993 % 1994(a) % 1995(a) % 1996 %
- --------------------------------------------------------------------------------------------------------------------
Net sales $538,526 100.0% $546,677 100.0% $609,507 100.0% $608,161 100.0%
% Growth 1.5% 11.5% -0.2%
Cost of sales 366,810 68.1% $362,981 66.4% 387,825 63.6% 427,388 03.3
--------------- --------------- -------------- ---------------
Gross profit 171,717 31.9% 183,696 33.6% 221,682 36.4% 180,773 29.7%
SG&A expenses 93,379 17.3% 95,314 17.4% 128,295 21.0% 105,601 17.4%
Direct delivery expense 29,902 5.6% 32,995 6.0% 36,634 6.0% 33,102 5.4%
Restructuring charges - - - 1,150 0.2%
Corporate identity expenses - - - 2,659 0.4%
Pension curtailment expense - - - 557 0.1%
Amortization of customer lists 23,183 4.3% 19,748 3.6% 20,527 3.4% 18,611 3.1%
Depreciation of plant and equipment 5,933 1.1% 6,469 1.2% 12,374 2.0% 6,574 1.1%
Amortization of deferred charges 5,548 1.0% 6,177 1.1% 6,142 1.0% 4,760 0.8%
Provision for supplemental benefits 264 0.0% 373 0.1% 1,407 0.2% 873 0.1%
--------------- -------------- -------------- ---------------
Operating income (loss) 13,509 2.5% 22,619 4.1% 16,303 2.7% 6,886 1.1%
Interest expense, net (20,508) -3.8% (23,766) -4.3% (38,792) -6.4% (32,412) -5.3%
Other income (expense) (165) 0.0% 109 0.0% 218 0.0% 1,842 0.3%
--------------- --------------- --------------- ----------------
Loss before income taxes, equity
interest and extraordinary item (7,164) -1.3% (1,038) -0.2% (22,271) -3.7% (23,684) -3.9%
Income taxes 400 0.1% 600 0.1% 500 0.1% 500 0.1%
--------------- --------------- --------------- ----------------
Loss before equity interest and
extraordinary item (7,564) -1.4% (1,638) -0.3% (22,771) -3.7% (24,184) -4.0%
Share of income (loss) of Gas - 0.0% (1,973) -0.4% 728 0.1% 2,283 0.4%
--------------- --------------- --------------- ----------------
Extraordinary item-loss on early
extinguishment of debt (867) -0.2% (655) -0.1% (1,436) -0.2% (6,414) -1.1%
--------------- -------------- --------------- ----------------
Net loss (8,431) -1.6% (4,266) -0.8% (23,479) -3.9% (28,315) -4.7%
Preferred stock dividends (3,367) -0.6% (3,510) -0.6% (3,263) -0.5% (2,389) -0.4%
--------------- --------------- --------------- ----------------
Net loss to common ($11,798) -2.2% ($7,776) -1.4% ($26,742) -4.4% ($30,704) -5.0%
======== ===== ======== ==== ======== ==== ======== ====
Net loss per share ($0.55) ($0.36) ($1.06) ($1.20)
======== ======== ======== ========
Weighted average shares
outstanding(b) 21,538 21,745 25,309 25,581
EBITDA(c) $48,437 9.0% $55,387 10.1% $56,753 9.3% $42,070 6.9%
Adjusted net loss to common (10,931) -2.0%(d) (7,121) -1.3%(e) (25,306) -4.2%(f) (22,583) -3.7%(g)
Adjusted net loss per share ($0.51) ($0.33) ($1.00) ($0.88)
======== ======== ======== ========
Acquisition capital expenditures $15,399 $26,411 $26,438 $28,493
Maintenance capital expenditures(i) 3,000 3,000 3,000 3,000
EBITDA/total assets 18.9% 13.9% 15.9% 15.3%
Distributable cash flow 24,528 28,020 14,461 6,158
1997 %
---------------
Net sales $548,141 100.0%
% Growth -9.9%
Cost of sales 379,748 69.3%
---------------
Gross profit 168,393 30.7%
SG&A expenses 102,377 18.7%
Direct delivery expense 30,006 5.5%
Restructuring charges 2,850 0.5%
Corporate identity expenses 4,136 0.8%
Pension curtailment expense 654 0.1%
Amortization of customer lists 17,903 3.3%
Depreciation of plant and equipment 7,204 1.3%
Amortization of deferred charges 4,639 0.8%
Provision for supplemental benefits 565 0.1%
---------------
Operating income (loss) (1,941) 4.0%
Interest expense, net (31,668) -5.8%
Other income (expense) 11,445 2.1%
---------------
Loss before income taxes, equity
interest and extraordinary item (22,164) -4.0%
Income taxes 500 0.1%
---------------
Loss before equity interest and
extraordinary item (22,664) -4.1%
Share of income (loss) of Gas (235) 0.0%
---------------
Extraordinary item-loss on early
extinguishment of debt -
---------------
Net loss (22,899) -4.2%
Preferred stock dividends (4,644) -0.8%
--------------
Net loss to common ($27,543) -5.0%
======== ====
Net loss per share ($1.06)
========
Weighted average shares
outstanding(b) 26,039
EBITDA(c) $36,010 6.6%
Adjusted net loss to common (35,439) -6.5%(b)
Adjusted net loss per share ($1.36)
========
Acquisition capital expenditures $16,252
Maintenance capital expenditures(i) 3,000
EBITDA/total assets 14.5%
Distributable cash flow 842
__________________________________________________
(a) Gas operations consolidated into OIL.
(b) Weighted shares do not include Class B shares.
(c) Calculated as gross profit minus SG&A expense and direct delivery expense.
(d) Excludes $867 for early extinguishment of debt.
(e) Excludes $655 for early extinguishment of debt.
(f) Excludes $1,436 for early extinguishment of debt.
(g) Excludes $6,414 for early extinguishment of debt.
(h) Excludes $11,400 gals on sale of TLC.
(i) Management's estimates.
Page 3
OVERVIEW OF OIL
MARKET PRICE ANALYSIS
PRICE AND VOLUME
12/15/95 - 4/22/98
[GRAPH APPEARS HERE]
Page 4
OVERVIEW OF OIL
CLASS A COMMON STOCK TRADING HISTORY - VOLUME DISTRIBUTION
1995 - 1998 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 (a)
-------------------- ------------------- ------------------ --------------------
Price Per Share Volume % Volume % Volume % Volume %
---------------------- -------------------- ------------------- ------------------ --------------------
Greater Than $9,400
9.200 9,400 600 100.00%
9.000 9,200 0 99.99%
8.800 9,000 49,200 99.99%
8.600 8,800 6,800 99.41%
8.400 8,600 67,500 99.33%
8.200 8,400 289,100 98.54%
8.000 8,200 161,500 95.13% 1,600 100.00%
7.800 8,000 873,500 93.22% 47,400 99.96%
7.600 7,800 245,800 82.92% 236,200 98.87%
7.400 7,600 193,300 80.02% 185,000 93.44%
7.200 7,400 1,154,800 77.74% 822,300 89.19%
7.000 7,200 5,190,500 64.12% 1,507,100 70.28%
6.800 7,000 246,000 2.90% 815,300 35.63%
6.600 6.800 498,500 16.88%
6.400 6.600 129,300 5.42% 417,300 100.00%
6.200 6.400 37,600 2.45% 526,900 96.34%
6.000 6.200 44,100 1.58% 417,700 91.72%
5.800 6.000 24,700 0.57% 110,200 88.06%
5.600 5.800 868,000 87.09%
5.400 5.600 143,300 79.48%
5.200 5.400 92,600 78.22%
5.000 5.200 940,500 77.41%
4.800 5.000 142,200 69.16%
4.600 4.800 20,200 67.92%
4.400 4.600 13,900 67.74%
4.200 4.400 - 67.62%
4.000 4.200 - 67.62%
3.800 4.000 117,100 67.62%
3.600 3.800 370,600 66.59%
3.400 3.600 250,900 63.34%
3.200 3.400 1,236,200 61.14%
--------------------------------------------------------------------------------------------------------
PROPOSED EXCHANGE PRICE 3.000 3.200 1,652,500 50,30%
--------------------------------------------------------------------------------------------------------
2.800 3.000 2,785,300 35.1% 130,000 100.00%
2.600 2.800 788,500 11.39% 249,100 96.12%
2.400 2.600 430,100 4.47% 270,800 88.69%
2.200 2.400 79,800 0.70% 1,044,100 80.61%
2.000 2.200 357,500 49.45%
1.800 2.000 311,500 38.78%
--------------------------------------------------------------------------------------------------------
CURRENT PRICE 1.600 1.800 277,900 29.48%
--------------------------------------------------------------------------------------------------------
1.400 1.600 710,000 21.19%
Less Than $1.400
---------- ---------- ----------- ----------
Total Stock for Period 8,478,600 4,349,500 11,403,800 3,350,900
Cumulative % of Total Traded 30.74% 15.77% 41.34% 12.15%
% Traded of Current Stock Out (b) 35.39% 18.16% 47.61% 13.99%
% Traded of Current Float (c) 70.15% 35.99% 94.36% 27.73%
Wtd. Average Stock Price $7.31 $7.07 $3.90 $2.09
- ---------------------------------------------------------------------
1995 - 1998 (a)
--------------------
Price Per Share Volume %
---------------------- --------------------
Greater Than $9,400
9.200 9,400 600 100.00%
9.000 9,200 - 100.00%
8.800 9,000 49,200 100.00%
8.600 8,800 6,800 99.82%
8.400 8,600 67,500 99.79%
8.200 8,400 289,100 99.55%
8.000 8,200 163,100 98.50%
7.800 8,000 920,900 97.91%
7.600 7,800 482,000 94.57%
7.400 7,600 378,300 92.82%
7.200 7,400 1,977,100 91.45%
7.000 7,200 6,697,600 84.29%
6.800 7,000 1,061,700 60.00%
6.600 6.800 498,500 56.15%
6.400 6.600 546,600 54.35%
6.200 6.400 564,500 52.37%
6.000 6.200 461,800 50.32%
5.800 6.000 134,900 48.64%
5.600 5.800 868,000 48.16%
5.400 5.600 143,300 45.01%
5.200 5.400 92,600 44.49%
5.000 5.200 940,500 44.15%
4.800 5.000 142,200 40.74%
4.600 4.800 20,200 40.23%
4.400 4.600 13,900 40.15%
4.200 4.400 - 40.10%
4.000 4.200 - 40.10%
3.800 4.000 117,100 40.10%
3.600 3.800 370,600 39.68%
3.400 3.600 250,900 38.34%
3.200 3.400 1,236,200 37.43%
-----------------------------------------
PROPOSED EXCHANGE PRICE 3.000 3.200 1,652,500 32.94%
-----------------------------------------
2.800 3.000 2,915,300 26.95%
2.600 2.800 1,037,600 16.38%
2.400 2.600 700,900 12.62%
2.200 2.400 1,123,900 10.08%
2.000 2.200 357,500 6.01%
1,800 2.000 311,500 4.71%
-----------------------------------------
CURRENT PRICE 1,600 1,800 277,000 3.58%
-----------------------------------------
1,400 1,600 710,000 2.57%
Less Than $1,400
-----------
Total Stock for Period 27,582,800
Cumulative % of Total Traded 100.00%
% Traded of Current Stock Out (b) 115.15%
% Traded of Current Float (c) 228.23%
Wtd. Average Stock Price $5.13
__________________
(a) Through April 22, 1998.
(b) Based on 23,954,560 Class A shares outstanding
(c) Based on 12,085,729 Class A shares by institutional and retail public
holders.
Page 5
OVERVIEW OF OIL
SHAREHOLDER ANALYSIS (a)
================================================================================
Class A % Of Total
Institutions (b) Shrs. Held % Of Total Voting Power
- ------------------------------ ---------- ---------- ------------
Dimensional Fund Adv. 621,000 2.6% 1.2%
CNA Financial Group 410,900 1.7% 0.8%
Barclays Bank plc 353,178 1.5% 0.7%
Deltec Asset Mgmt. 250,810 1.0% 0.5%
Frank Russell Company 236,386 1.0% 0.5%
Wellington Management 224,905 0.9% 0.5%
Vanguard Group 215,500 0.9% 0.4%
Fleming Overseas 202,611 0.8% 0.4%
Bear, Stearns & Co. 167,231 0.7% 0.3%
Fidelity Management 118,700 0.5% 0.2%
Mellon Bank 115,243 0.5% 0.2%
Northern Trust 85,611 0.4% 0.2%
ANB Investment Mgmt. 51,100 0.2% 0.1%
Prudential Insurance 47,300 0.2% 0.1%
World Asset Management 23,937 0.1% 0.0%
IBM Retirement Funds 16,300 0.1% 0.0%
Miss Pub-Dom Eq 4,600 0.0% 0.0%
DLJ Corp. 3,086 0.0% 0.0%
Beck, Mack & Oliver 3,000 0.0% 0.0%
Legg Mason 2,000 0.0% 0.0%
---------- ---------- ------------
All Institutions (c) 3,153,398 13.2% 6.3%
Class A Class C
Directors And Officers (C) Title Shrs. Held % Of Total Shrs. Held % Of Total
- ----------------------------- ------------------------------------- ---------- ---------- ---------- ----------
Audrey L. Sevin Director and Secretary of Oil and Gas 1,876,863 7.8% 477,716 18.4%
Irik P. Sevin Chairman, CEO and Director of Oil 740,438 3.1% 201,641 7.8%
Phillip Ean Cohen Director of Oil 679,262 2.8% 113,423 4.4%
Thomas J. Edelman Director of Oil and Gas 653,312 2.7% 129,019 5.0%
Vincent De Palma VP and GM of New York Region 5,000 0.0% - 0.0%
Hanseatic Corporation (d) (e) 1,777,279 7.4% 298,717 11.5%
Tortosa (d) - 0.0% 298,717 11.5%
Wolfgang Traber (e) Director of Oil and Gas - 0.0% 9,038 0.3%
Paul Biddelman (e) Director of Oil and Gas 2,386 0.0% - 0.0%
---------- ---------- ---------- ----------
Total Directors & Officers Holdings 5,734.540 23.9% 1,528,271 58.8%
Class A Class C
5% Beneficial Owners Shrs. Held % Of Total Shrs. Held % Of Total
- ----------------------------- ---------- ---------- ---------- ----------
Schneider Capital 4,388,920 18.3% - 0.0%
Richard O'Connell 1,128,745 4.7% 302,461 11.6%
Barcel Corporation 616,626 2.6% 151,231 5.8%
---------- ---------- ---------- ----------
Total 5% Beneficial Holdings 6,134,291 25.6% 453,692 17.5%
Total % Of Total
Directors And Officers (C) Voting Power Voting Power
- ----------------------------- ----------- ------------
Audrey L. Sevin 6,654,023 13.3%
Irik P. Sevin 2,756,848 5.5%
Phillip Ean Cohen 1,813,492 3.6%
Thomas J. Edelman 1,943,502 3.9%
Vincent De Palma 5,000 0.0%
Hanseatic Corporation (d) (e) 4,764,449 9.5%
Tortosa (d) 2,987,170 6.0%
Wolfgang Traber (e) 90,380 0.2%
Paul Biddelman (e) 2,386 0.0%
----------- ------------
Total Directors & Officers Holdings 21,017,250 42.1%
Total % Of Total
5% Beneficial Owners Voting Power Voting Power
- ----------------------------- ----------- ------------
Schneider Capital 4,388,920 8.8%
Richard O'Connell 4,153,355 8.3%
Barcel Corporation 2,128,936 4.3%
----------- ------------
Total 5% Beneficial Holdings 10,671,211 21.4%
- --------------------------------------------------------------------------------------------------------------------
% Of % Of Total % Of Total
Summary Class A Total Class C Total Voting Power Voting Power
- ------- ---------- --------- ---------- ---------- ------------ ------------
Insider Holdings
Directors and Officers as a Group 5,734,540 23.9% 1,528,271 58.8% 21,017,250 42.1%
5% Beneficial Owners 6,134,291 25.6% 453,692 17.5% 10,671,211 21.4%
---------- --------- ---------- ---------- ------------ ------------
11,868,831 49.5% 1,981,963 76.3% 31,688,461 63.5%
Public Holdings
Institutional 3,153,398 13.2% 3,153,398 6.3%
Retail 8,932,331 (f) 37.3% 8,932,331 17.9%
---------- --------- ------------ ------------
12,085,729 50.5% 12,085,729 24.2%
Other Holdings 615,556 23.7% 6,155,560 12.3%
---------- ---------- ------------ ------------
615,556 23.7% 6,155,560 12.3%
Total 23,954,560 100.0% 2,597,519 100.0% 49,929,750 100.0%
====================================================================================================================
____________________________
(a) Based on shares outstanding, most recently available data as of 4/23/98 and
does not include options to purchase and Class B shares.
(b) Source: Vickers Stock Research Corporation, Bloomberg and Oil's Proxy.
(c) Does not include 5% beneficial ownership institutions.
(d) Hanseatic Corporation holds shared voting power in Tortosa.
(e) Mr. Traber and Mr. Biddelman are executive officers of Hanseatic
Corporation.
(f) AGE has 29,412 Class A shares in its system.
Page 6
OVERVIEW OF OIL
RESEARCH COVERAGE
WHILE OIL HAD DECENT RESEARCH COVERAGE DATE PUBLISHED ESTIMATES UPDATED
----------------- -------------- -----------------
COVERAGE IN 1996, THERE
HAVE NOT BEEN ANY Published Research Reports
REPORTS PUBLISHED Bear Stearns 9/5/96 10/18/96
RECENTLY. DLJ 8/2/96 --
PaineWebber 7/16/96 11/11/97
Additional Research
Jefferies - Hold
EARNINGS ESTIMATES NUMBER OF ESTIMATES MEAN 1998 MEAN 1999
------------------ ------------------- --------- ---------
IBES 1 $0.70 NA
Nelson 1 $0.70 NA
Page 7
OVERVIEW OF OIL
DISCOUNTED CASH FLOW ANALYSIS
WEIGHTED AVERAGE COST OF CAPITAL DERIVATION
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Implied Total Total
Market Unit Total Market Debt/ Debt as % Un-
Levered Val. Debt Price at Units Value of Total of Total levered
Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Ont. (Mh) Equity Equity Capital Beta
- ------------------------------------------------------------------------------------------------------------------------------------
AmeriGas Partners, L.P. 0.48 $777.8 $25.938 41.9 $1,108.6 70.2% 41.2% 0.282
Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264
Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210
Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227
National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208
Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195
Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203
-----------------------------------------------
Comparable group's average Oil's capitalization--at market
unlevered beta: 0.23 Total debt (b) $314.5 87.9%
Oil's debt-to-equity ratio: 725.5% Common equity 43.3 12.1%
Oil's debt as a percent of total ------ -----
capital: 87.9% $357.8 100.0%
Comparable group's beta relevered -----------------------------------------------
for Oil's capital structure: 1.874
=====
Oil's capitalization - at market
Total debt(b) $314.5 87.9%
Common equity 43.3 12.1%
----- -----
$357.8 100.0%
Derivation of Weighted Average Cost of Capital: Market Risk Premium Range (e)
- ---------------------------------------------- -----------------------------
11.3% 12.3% 13.3%
Oil's theoretical levered beta(d): 1.874
Assumed % of equity in Oil's capital
structure: 21.1%
Risk-free rate of return(c): 5.7%
Oil's cost of equity range (at
various market risk premiums): 26.9% 28.7% 30.6%
==== ==== ====
Oil's assumed tax rate: 0.0%
Assumed % of debt in capital
structure(b): 87.9%
Oil's estimated cost of debt(f): 11.2%
Oil's estimated after-tax cost of debt: 11.2% 11.2% 11.2% 11.2%
==== ==== ====
Oil's weighted average cost of capital
range(g): 13.1% 13.3% 13.6%
==== ==== ====
- ------------
(a) Source: Bloomberg. (143 week (maximum weekly time period allowed, or the
number of weeks available, which may be less than 143) adjusted beta
relative to the S&P 500 index.
(b) Includes preferred stock; not net of cash.
(c) Ten-year Treasury rate on April 22, 1998.
(d) Bloomberg's reported beta for Oil is .63.
(e) Ibhotson Associates 1997. Total returns for small company stocks of 17.7%
minus the risk-free rate.
(f) Based on Oil's current debt structure.
(g) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
OVERVIEW OF OIL
EBITDA RECONCILIATION: 1997 (a)
---------------------------------------------------------------------------
OIL
---
1997 Actual EBITDA $36,010
NORMALIZING ADJUSTMENTS:
Weather was 3.8% warmer than 30-year normal
3.8% of 1997 budgeted retail gallons 13,482 gallons
Gross profit margin $0.4545
Delivery and garage cost savings ($0.0814)
---------
Net impact per gallon $0.3731
$ impact 5,030
Insurance reserve 2,000
-------
1997 Adjusted EBITDA $43,040
=======
- ------------------------------------------------------------------------------
(a) Management's assumptions.
Page 9
OVERVIEW OF OIL
EBITDA RECONCILIATION: 1997 - 1998 (a)
(continued)
-----------------------------------------------------------------------------
OIL
---
1997 Adjusted EBITDA $43,040
Volume Adjustments for 1998
Sale of TLC Division in 1997 (16,926) gallons
Attrition in 1998 (4.1%) (17,375)
1997 Acquisitions 9,828
-------
(24,473) gallons
@
$0.1700/gallon (b) (4,159)
Gross Profit Margin Increase $0.006 per gallon on 395,086 gallons (c) 2,371
Inflation (3,662)
Operating Cost Reductions (d) 5,850
-------
1998 EBITDA Budget $43,440
=======
-----------------------------------------------------------------------------
(a) Management's assumptions.
(b) Represents the average gross profit per gallon ($.4700 per gallon) offset
by $.30 per gallon reduction in operating expenses.
(c) Actual gross profit margin increase achieved in first quarter of 1998 was
$5.9 million (156 million gallons @ $0.037/gallon).
(d) Represents already accomplished reductions in branch, regional and
corporate expenses in excess of normal indexing related to volume
reductions as well as 1% productivity improvements.
Page 10
OVERVIEW OF OIL
EBITDA RECONCILIATION: 1998 (a)
(continued)
-----------------------------------------------------------------------
OIL
---
1998 EBITDA Budget
$43,440
Normalized Acquisition Growth
$30,000 of acquisitions at 4.75x multiple 6,315
-------
1998 EBITDA Normalized $49,755
=======
1998 EBITDA Budget $43,440
Actual Differential between first three months
of Fiscal 1998 vs. Budget (9,318)
Revised margin improvement and cost savings
estimates based on first three months of
Fiscal 1998 vs. Budget. 4,378
-----
Adjusted 1998 EBITDA Budget $38,500
=======
----------------------------------------------------------------------
(a) Management's assumptions.
Page 11
OVERVIEW OF OIL
EBITDA RECONCILIATION: 1998-1999 (a)
(continued)
-----------------------------------------------------------------------
OIL
---
1998 EBITDA Normalized $49,755
Internal Attrition (4.1%) and other adjustments (4,413)
Normalized Acquisition Growth
$30,000 of acquisitions at 4.75x multiple 6,315
-------
1999 Projection $51,657
=======
-----------------------------------------------------------------------
(a) Management's assumptions.
Page 12
OVERVIEW OF OIL
EBITDA SUMMARY
--------------------------------------------------------------
OIL
---
1997 Actual $36,010
1997 Adjusted 43,040
1998 Budget $43,440
1998 Normalized 49,755
Adjusted 1998 Budget $38,500
1999E $51,657
--------------------------------------------------------------
Page 13
OVERVIEW OF OIL
ACQUISITION HISTORY
--------------------------------------------------------------------------------------------
Date EBITDA Acquired Cost per
Acquired Company Purchase Price EBITDA Multiple Gallonage Gallon
-------- ------- -------------- ------ -------- --------- ------
1/26/93 Houck Service $ 663.9 $ 245.0 2.7x 807.2 $0.823
1/28/93 Harris and Gans 1,607.9 475.0 3.4x 2,599.6 0.619
5/28/93 Goodrich 2,397.7 672.0 3.6x 4,156.0 0.577
6/4/93 Warren 2,965.0 712.0 4.2x 14,448.3 0.205
6/23/93 Savin 1,655.4 403.0 4.1x 2,769.0 0.598
6/25/93 Baylis and Baylis 989.3 251.0 3.9x 1,224.7 0.808
7/28/93 Agway 1,660.6 315.0 5.3x 2,708.5 0.613
9/28/93 Garden State 1,015.2 312.0 3.3x 1,408.0 0.721
9/29/93 Essex 866.3 234.0 3.7x 2,649.4 0.327
1993 Totals $ 13,821 $ 3,619 3.8x 32,771 $0.422
--------- -------- ------ -------- ------
1/7/94 Petrilla Oil $ 189.5 $ 53.4 3.5x 329.0 $0.576
3/8/94 Rettig 1,813.0 466.0 3.9x 4,930.0 0.368
6/30/94 Deblois Oil 15,374.6 2,909.0 5.3x 19,869.0 0.774
7/26/94 Herbert Fuel 5,133.0 882.0 5.8x 6,103.0 0.841
7/28/94 Trico Fuel 3,126.3 930.0 3.4x 4,091.0 0.764
9/1/94 Sickley 1,261.4 355.0 3.6x 1,702.0 0.741
9/13/94 Sinkler 4,880.0 948.0 5.1x 7,433.0 0.657
12/1/94 Ryan 2,954.3 528.0 5.6x 4,804.0 0.615
12/2/94 Fowler 182.8 37.4 4.9x 354.0 0,516
1994 Totals $ 34,915 $ 7,109 4.9x 49,615 $0.704
--------- -------- ------ -------- ------
3/30/95 Reliable Oil $ 6,065.6 $1,183.0 5.1x 10,102.2 $0.600
5/24/95 Rosetta (Waldman) 3,413.2 684.0 5.0x 5,153.6 0.662
5/24/95 Rosetta (Price) 789.4 153.0 5.2x 1,309.5 0.603
7/27/95 Slocum 643.8 198.0 3.3x 742.6 0.867
8/23/95 Contex 1,856.8 448.0 4.1x 2,503.2 0.742
8/31/95 Rackliffe 546.2 139.0 3.9x 904.0 0.604
9/1/95 A-One 5,184.2 1,164.0 4.5x 5,900.0 0.879
9/11/95 Reading Merchants 4,260.0 656.0 6.5x 3,613.0 1.179
10/25/95 Franklin Fuel 293.5 76.0 3.9x 445.0 0,660
11/17/95 Home Fuel 2,158.9 430.0 5.0x 6,072.3 0.356
12/19/95 Texaco 3,854.8 1,071.0 3.6x 5,845.1 0.659
1995 Totals $ 29,066 $ 6,202 4.7x 42,590 $0.682
--------- -------- ------ -------- ------
Page 14
OVERVIEW OF OIL
ACQUISITION HISTORY
(continued)
---------------------------------------------------------------------------------------------
Date EBITDA Acquired Cost per
Acquired Company Purchase Price EBITDA Multiple Gallonage Gallon
-------- ------- -------------- ------ -------- --------- ------
1/11/96 Garrison $ 5,242.5 $1,154.0 4.5x 6,017.0 $0.871
1/19/96 Cibro 4,367.6 1,087.0 4.0x 6,200.0 0.704
2/1/96 Seaman 7,133.7 1,552.0 4.6x 7,522.0 0.948
4/1/96 McDowell 2,723.5 669.0 4.1x 2,675.0 1.018
9/11/96 Flynn 1,038.0 232.0 4.5x 1,316.0 0.789
9/24/96 Farren 263.6 69.0 3.8x 481.0 0.548
10/18/96 Bergen 3,202.5 718.0 4.5x 5,933.0 0.540
10/18/96 Hightstown 233.5 62.0 3.8x 500.0 0.467
10/31/96 Hy-Test 813.4 177.0 4.6x 1,468.0 0.554
12/18/96 Dexter 331.9 99.0 3.4x 796.0 0.417
12/26/96 Sherman 492.5 103.0 4.8x 564.0 0.873
12/27/96 Malco 369.2 97.0 3.8x 988.0 0.374
12/30/96 Grasso 422.9 116.0 3.6x 1,212.0 0.349
1996 Totals $ 26,635 $ 6,135 4.3x 35,672 $0.747
--------- -------- ------ ------- ------
1/15/97 Oils Inc $ 747.6 $ 188.0 4.0x 1,189.0 $0.629
4/14/97 Mugullian Fuel 2,801.9 638.0 4.4x 3,000.0 0.934
5/14/97 Alderfer Heating 401.1 111.0 3.6x 787.0 0.510
6/26/97 Bellomo 1,488.8 443.0 3.4x 1,657.0 0.898
7/10/97 Good 521.4 117.0 4.5x 1,200.0 0.434
8/29/97 Oil Burner 2,633.1 603.0 4.4x 3,500.0 0.752
9/10/97 Romary 2,252.5 545.0 4.1x 2,348.0 0.959
9/29/97 T. W. Perry 1,619.3 439.0 3.7x 2,118.0 0.765
10/1/97 MiliBrook 527.5 112.0 4.7x 908.0 0.581
11/24/97 Shreve 1,457.0 300.0 4.9x 2,425.0 0.601
12/18/97 Genovese 1,010.8 281.0 3.6x - -
1997 Totals $ 15,461 $ 3,777 4.1x 19,132 $0.808
--------- -------- ------ ------- ------
5 Year Totals $ 119,898 $ 26,842 4.5x $179,780 $0.667
========= ======== ====== ======== ======
Page 15
OVERVIEW OF OIL
MARGIN ANALYSIS
(VOLUME IN GALLONS; GALLONS AND $ IN THOUSANDS, EXCEPT MARGINS)
====================================================================================================================================
Fiscal Years Ended December 31,
----------------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
RETAIL (b)
Volume 355,347 360,207 343,759 375,121 338,478
Margin $ 0.4883 $ 0.5030 $ 0.5027 $ 0.4993 $ 0.5196
-------- -------- -------- -------- --------
Gross profit $173,501 $181,202 $172,811 $187,290 $175,867
COMMERCIAL
Volume 81,515 79,514 75,476 81,020 71,813
Margin $ 0.2301 $ 0.2416 $ 0.2458 $ 0.2471 $ 0.2452
-------- -------- -------- -------- --------
Gross profit $ 18,755 $ 19,214 $ 18,554 $ 20,018 $ 17,607
PROPANE
Volume 6,625 7,435 5,538 - -
Margin $ 0.5352 $ 0.5730 $ 0.5805 $ 0.0000 $ 0.0000
-------- -------- -------- -------- --------
Gross profit $ 3,546 $ 4,260 $ 3,215 - -
OTHER PETROLEUM PRODUCTS
Volume 36,406 35,709 31,228 32,026 29,855
Margin $ 0.1424 $ 0.1417 $ 0.1481 $ 0.1401 $ 0.1424
-------- -------- -------- -------- --------
Gross profit $ 5,183 $ 5,061 $ 4,624 $ 4,487 $ 4,251
TOTAL PETROLEUM PRODUCTS
Volume 479,893 482,865 456,001 488,167 440,146
Margin $ 0.4188 $ 0.4344 $ 0.4368 $ 0.4339 $ 0.4492
-------- -------- -------- -------- --------
Gross profit $200,985 $209,737 $199,204 $211,795 $197,725
-------- -------- -------- -------- --------
DISCOUNTS $ 1,294 $ 1,200 $ 944 $ 1,084 $ 802
-------- -------- -------- -------- --------
Net service loss ($34,243) ($37,941) ($33,822) ($37,386) ($35,184)
Net installation income 3,681 4,944 4,364 5,280 5,050
-------- -------- -------- -------- --------
Gross profit (loss) ($30,562) ($32,997) ($29,458) ($32,106) ($30,134)
-------- -------- -------- -------- --------
Gas Gross Profit - $ 5,756 $ 50,992 - -
Total Gross Profit $171,717 $183,696 $221,682 $180,773 $168,393
======== ======== ======== ======== ========
Projected Years Ended December 31, (a)
----------------------------------------------------------------------------------
1998 1999 2000 2001 2002
-------- -------- -------- -------- --------
RETAIL (b)
Volume 362,070 376,560 390,457 403,784 416,564
Margin $ 0.5220 $ 0.5220 $ 0.5220 $ 0.5220 $ 0.5220
-------- -------- -------- -------- --------
Gross profit $189,001 $196,564 $203,819 $210,775 $217,446
COMMERCIAL
Volume 71,547 75,948 80,168 84,215 88,096
Margin $ 0.2502 $ 0.2502 $ 0.2502 $ 0.2502 $ 0.2502
-------- -------- -------- -------- --------
Gross profit $ 17,901 $ 19,002 $ 20,058 $ 21,071 $ 22,042
PROPANE
Volume - - - - -
Margin $ 0.000 $ 0.000 $ 0.000 $ 0.000 $ 0.000
-------- -------- -------- -------- --------
Gross profit - - - - -
OTHER PETROLEUM PRODUCTS
Volume 29,038 27,847 26,706 25,611 24,561
Margin $ 0.1379 $ 0.1379 $ 0.1379 $ 0.1379 $ 0.1379
-------- -------- -------- -------- --------
Gross profit $ 4,004 $ 3,840 $ 3,683 $ 3,532 $ 3,387
TOTAL PETROLEUM PRODUCTS
Volume 462,655 480,355 497,331 513,610 529,221
Margin $ 0.4559 $ 0.4568 $ 0.4576 $ 0.4583 $ 0.4589
-------- -------- -------- -------- --------
Gross profit $210,906 $219,407 $227,559 $235,378 $242,875
-------- -------- -------- -------- --------
DISCOUNTS $ 841 - - - -
-------- -------- -------- -------- --------
Net service loss (33,135) ($34,526) ($35,803) ($36,972) ($38,038)
Net installation income 5,627 6,610 7,612 8,632 9,668
-------- -------- -------- -------- --------
Gross profit (loss) ($27,508) ($27,916) ($28,191) ($28,340) ($28,370)
-------- -------- -------- -------- --------
Gas Gross Profit - - - - -
Total Gross Profit $ 184,239 $191,491 $199,368 $207,037 $214,505
========= ======== ======== ======== ========
______________________________________________________________________________
(a) Assumes 4.1% steady attrition, 0% margin improvement, and $30 million in
acquistions at 4.?5 multiple.
(b) Includes protected ????? volumes
Page 16
OVERVIEW OF OIL
ATTRITION ANALYSIS
- ------------------------------------------------------------------------------------------------------------------------------------
Average Accounts Absolute Account Losses Loss Rate Gains Net Attrition Rate
---------------------------- --------------------------- ------------------- ------------------ ------------------
Base Business, Base Business, Base
Year Total excl. Acquisitions Total excl. Acquisitions Total Base Accounts % Total Business
- ------ ----- ------------------ ----- ------------------ ------ -------- -------- ----- ------ ----------
1993 391,454 352,576 70,127 56,459 17.9% 16.0% 47,090 12.0% -5.9% -4.0%
1994 386,235 354,786 57,442 46,386 14.9% 13.1% 35,380 9.2% -5.7% -3.9%
1995 381,842 344,342 59,550 46,366 15.6% 13.5% 34,516 9.0% -6.6% -4.5%
1996 386,398 354,471 60,084 48,860 15.5% 13.8% 39,192 10.1% -5.4% -3.7%
1997 366,421 342,738 60,907 52,581 16.6% 15.3% 39,561 10.8% -5.8% -4.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Mean 382,470 349,783 61,622 50,130 16.1% 14.3% 39,148 10.2% -5.9% -4.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Page 17
OVERVIEW OF GAS
SUMMARY FINANCIAL ANALYSIS
($ in thousands, except per unit data)
- -------------------------------------------------------------------------------------------------------------
State of Incorporation: Delaware Market Price (4/22/98): $21,938
Headquarters: Stanford, CT 52- Week High-Low $24,750 - 19,000
Auditors: KPMG Peat Marwick LLP Common, Sub, And GP Units Outstanding: 6,355
Primary Exchange: NASDAQ Most Recent Fiscal Year End: 9/30/97
Primary Area of Focus: Midwest, Northeast US
Selected Data
- -----------------------------------------------------------------------------------------------------------
Total Net Earnings Distributable Distributable
Year Revenues EDITDA (a) Income Per Unit Cash Flow CF/Unit CapEx.
- ---------- -------- ---------- ------ -------- ------------ ------------- ----------
1996 $119,634 $19,870 $2,593 $0.49 $10,361 $1.97 $5,332
1997 135,159 19,703 1,972 0.37 9,612 1.82 5,279
Proj. 1998 (b) 121,024 18,279 (1,321) (0.21) 7,737 1.22 4,551
Proj. 1999 (b) 156,296 26,730 3,691 0.54 14,317 2.09 5,071
- ----------------------------------------------------
Book Capitalization
-------------------
(12/31/97)
----------
Total Debt $ 96,600
Total Partners' Capital 71,883
---------
Total $ 167,883
=========
Estimated Firm Value
--------------------
Total Debt $ 96,000
Implied Market Val. of Equity (c) 139,411
---------
Total $ 235,411
---------
Less: Cash and Equivalents 3,452
---------
Net Firm Value $ 231,959
=========
Multiple Analysis
-----------------
Net Firm Value/97A EDITDA: 11.8x
Net Firm Value/98E EDITDA: 12.7
Net Firm Value/99E EDITDA: 8.7
1997A Common Unit coverage 1.5x
1998E Common Unit coverage 0.9
1999E Common Unit coverage 1.5
1997A Total Distribution coverage 0.8x
1999E Total Distribution coverage 0.6
1999E Total Distribution coverage 1.0
- ----------------------------------------------------
________________________________________________________________________________
(a) EBITDA is defined as gross profit less operating expenses.
(b) Source: management's projections; 1998 EBITDA is before acquisitions,
adjusted for actual 1Q results. See pages 25 to 26.
(c) Implied equity value equals common, subordinated, and GP units,
multiplied by the market price of common units.
Page 18
OVERVIEW OF GAS
SELECTED FINANCIAL DATA
($ in thousands)
- --------------------------------------------------------------------------------------------------------------------------
Historical Years Ended September 30,
-------------------------------------------------------------------------------------------
1996 % 1997 % 1997 (a) %
Sales $119,634 100.0% $135,159 100.0% $149,766 100.0%
% Growth 17.0% 13.0% 25.2% (c)
Cost of sales 58,557 48.9% 72,211 53.4% 80,370 53.7%
----------------- ----------------- --------------------
Gross profit 61,077 51.1% 62,948 46.6% 69,396 46.3%
Operating expenses 41,207 34.4% 43,245 32.0% (d) 46,408 31.0%
Net (loss) on sales of assets (260) -0.2% (295) -0.2% (265) -0.2%
Depreciation and amortization 9,808 8.2% 10,405 7.7% 11,495 7.7%
----------------- ----------------- --------------------
Operating income 9,802 8.2% 9,003 6.7% 11,228 7.5%
Interest expense, net 7,124 6.0% 6,966 5.2% 7,766 5.2%
----------------- ----------------- --------------------
Income (loss) before income taxes 2,678 2.2% 2,037 1.5% 3,462 2.3%
Income taxes 85 0.1% 25 0.0% 25 0.0%
General Partners' interest - 0.0% 40 0.0% 69 0.0%
----------------- ----------------- --------------------
Net income $ 2,593 2.2% $ 1,972 1.5% $ 3,368 2.2%
================= ================= ====================
Net income per limited partner
unit $ 0.49 $ 0.37 $ 0.54
========= ========= ==========
Weighted average L.P. units
outstanding 5,271 5,271 6,228
EBITDA (e) $ 19,870 16.6% $ 19,703 14.6% $ 22,988 15.3%
Capital expenditures $ 5,332 $ 5,279 $ 5,579
Maintenance capital expenditures 2,300 3,100 3,400
Distributable cash flow 10,361 9,612 11,797
Distributable cash flow per unit $ 1.97 $ 1.82 $ 1.89
Common distribution coverage 1.8x 1.5x 1.4x
Total distribution coverage 0.9x 0.8x 0.8X
EBITDA/total assets 12.7% 13.4% 12.8%
Net income / partners' capital 4.2% 3.8% 4.7%
- --------------------------------------------------------------------------------------------
Projected Years Ending September 30,
-----------------------------------------------------
1998 (b) % 1999 (b) %
- --------------------------------------------------------------------------------------------
Sales $121,024 100.0% $156,296 100.0%
% Growth -19.2% 29.1%
Cost of sales 58,041 48.0% 77,391 49.5%
----------------- -----------------
Gross profit 62,983 52.0% 78,905 50.5%
Operating expenses 44,704 36.9% 52,175 33.4%
Net (loss) on sales of assets 0.0% - 0.0%
Depreciation and amortization 11,768 9.7% 13,900 8.9%
----------------- -----------------
Operating income 6,511 5.4% 12,830 8.2%
Interest expense, net 7,807 6.5% 9,114 5.8%
----------------- -----------------
Income (loss) before income taxes (1,296) -1.1% 3,716 2.4%
Income taxes 25 0.0% 25 0.0%
General Partners' interest - 0.0% - 0.0%
----------------- -----------------
Net income ($ 1,321) -1.1% $ 3,691 2.4%
================= =================
Net income per limited partner
unit ($ 0.21) $ 0.54
========= =========
Weighted average L.P. units
outstanding 6,355 6,840
EBITDA (e) $ 18,279 15.1% $ 26,730 17.1%
Capital expenditures $ 4,551 $ 5,071
Maintenance capital expenditures $ 2,710 $ 3,274
Distributable cash flow 7,737 14,317
Distributable cash flow per unit $ 1.22 $ 2.09
Common distribution coverage 0.9x 1.5x
Total distribution coverage 0.6x 1.0x
EBITDA/total assets 10.4% 15.1%
Net income / partners'capital -2.1% 6.8%
________________________________
(a) Proforma for December 16, 1997 common unit offering and the acquisition of
Pearl Gas Co.
(b) Projected figures per Management.
(c) Growth over 1996.
(d) Includes $350 in special project expenses.
(e) Excludes loss from sale of assets.
Page 19
OVERVIEW OF GAS
MARKET PRICE ANALYSIS
PRICE AND VOLUME
12/15/95 - 4/22/98
[CHART APPEARS HERE]
Page 20
OVERVIEW OF GAS
COMMON UNIT TRADING HISTORY - VOLUME DISTRIBUTION
1995-1998 (A)
- ------------------------------------------------------------------------------------------------------------------------------------
Dec. 15-31 1995 1996 1997 1998 (a)
------------------- -------------------- -------------------- ---------------------
Price Per Share Volume % Volume % Volume % Volume %
--------------------- ------------------- -------------------- -------------------- ---------------------
Greater than $24.600
24.400 24.600 32,400 100.00%
24.200 24.400 55,300 99.34% 26,000 100.00% 75,500 100.00%
24.000 24.200 27,200 98.20% 25,800 99.24% - 96.47%
23.800 24.000 436,500 97.65% 38,400 98.49% - 96.47%
23.600 23.800 119,200 88.71% 3,000 97.37% 131,200 96.47%
23.400 23.600 79,500 86.27% 56,900 97.28% 85,600 90.32%
23.200 23.400 105,000 84.64% 194,500 95.62% 173,700 86.31%
23.000 23.200 396,900 82.49% 148,000 89.94% 51,400 78.18%
22.800 23.000 229,200 74.36% 102,100 85.62% 36,200 75.77%
22.600 22.800 96,100 69.67% 184,500 82.64% 42,700 74.08%
22.400 22.600 273,800 67.70% 145,500 77.26% 148,600 72.08%
22.200 22.400 33,400 100.00% 430,500 62.09% 128,000 73.01% 603,100 65.12%
22.000 22.200 762,000 95.80% 510,900 53.28% 217,500 69.27% 205,600 36.89%
-------------------------------------------------------------------------------------------------------------------
Current Price 21.800 22.000 400,400 42.82% 411,600 62.92% 299,800 27.26%
-------------------------------------------------------------------------------------------------------------------
21.600 21.800 422,600 34.62% 302,200 50.91% 155,300 13.22%
21.400 21.600 259,400 25.96% 290,200 42.09% 127,100 5.95%
21.200 21.400 214,300 20.65% 372,800 33.62%
21.000 21.200 388,000 16.26% 499,100 22.74%
20.800 21.000 110,900 8.32% 108,000 8.17%
20.600 20.800 137,500 6.05% 34,300 5.01%
20.400 20.600 41,900 3.23% 16,000 4.01%
20.200 20.400 62,800 2.38% 46,500 3.55%
20.000 20.200 53,200 1.09% 22,000 2.19%
19.800 20.000 24,400 1.55%
19.600 19.800 28,600 0.83%
Less Than $19.600
------- --------- --------- ---------
Total Units for Period 795,400 4,883,500 3,425,900 2,135,800
Cumulative % of Total Traded 7.08% 43.45% 30.48% 19.00%
% Traded of Current Units Out. (b) 20.76% 127.45% 89.41% 55.74%
Wtd. Average Unit Price $22.11 $22.25 $21.89 $22.47
- -----------------------------------------------------------------
1995-1998 (a)
---------------------
Price Per Share Volume %
--------------------- ---------------------
Greater than $24.600
24.400 24.600 32,400 100.00%
24.200 24.400 156,800 99.71%
24.000 24.200 53,000 98.32%
23.800 24.000 474,900 97.85%
23.600 23.800 253,400 93.62%
23.400 23.600 222,000 91.37%
23.200 23.400 473,200 89.39%
23.000 23.200 596,300 85.18%
22.800 23.000 367,500 79.88%
22.600 22.800 323,300 76.61%
22.400 22.600 567,900 73.73%
22.200 22.400 1,195,000 68.68%
22.000 22.200 1,696,000 58.05%
--------------------------------------------------
Current Price 21.800 22.000 1,111,800 42.96%
--------------------------------------------------
21.600 21.800 880,100 33.07%
21.400 21.600 676,700 25.24%
21.200 21.400 587,100 19.22%
21.000 21.200 887,100 14.00%
20.800 21.000 218,900 6.10%
20.600 20.800 171,800 4.16%
20.400 20.600 57,900 2.63%
20.200 20.400 109,300 2.11%
20.000 20.200 75,200 1.14%
19.800 20.000 24,400 0.47%
19.600 19.800 28,600 0.25%
Less Than $19.600
----------
Total Units for Period 11,240,600
Cumulative % of Total Traded 100.00%
% Traded of Current Units Out. (b) 293.36%
Wtd. Average Unit Price $22.17
________________________________________
(a) Through April 22, 1998.
(b) Based on 3,831,727 common units outstanding.
Page 21
OVERVIEW OF GAS
UNITHOLDER ANALYSIS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON
INSTITUTIONS (b) UNITS HELD % OF TOTAL
- ---------------------- ---------- ----------
Bear, Stearns & Co. 47,700 1.2%
PaineWebber Group 38,750 1.0%
Graver Bokhof 28,400 0.7%
DLJ Corp. 24,331 0.6%
Orion Capital Corp. 16,000 0.4%
Advest Group, Inc. 10,900 0.3%
CIBC Oppenheimer 1,000 0.0%
Legg Mason Wood Walker 500 0.0%
U.S. Trust Co. NY 500 0.0%
Cullen/Frost Bankers 300 0.0%
------- ------
All Institutions 168,381 4.4%
- ----------------------------------------------------------------------------------------------
COMMON SUBORDINATED
DIRECTORS AND OFFICERS TITLE UNITS HELD % OF TOTAL UNITS HELD % OF TOTAL
- ---------------------- ---- ---------- ---------- ------------ ----------
10,400 0.3% - 0.0%
Wolfgang Traber Gas Director and Oil Director 525 0.0% - 0.0%
Richard F. Ambury V.P. of Finance --------- ---- ---------- --------
Total Directors & Officers Holdings 10,925 0.3% - 0.0%
Common Subordinated
General Partner Units Held % of Total Units Held % of Total
- -------------------- ----------- ---------- ----------- ----------
OIL 60,727 1.6% 2,396,078 100.0%
- -------------------------------------------------------------------------------------------------
SUMMARY
- -------
Common % of Subordinated % of
INSIDER HOLDINGS Units Total Units total
------ ----- ------------ -----
Directors and Officers as a Group 10,925 0.3% - 0.0%
General Partner 60,727 1.6% 2,396,078 100.0%
------ ------ ----------- -----
71,652 1.9% 2,396,078 100.0%
PUBLIC HOLDINGS
Institutional 168,381 4.4%
Retail 3,591,694 (c) 93.7%
------------- ------
3,760,075 98.1%
TOTAL UNITS OUTSTANDING 3,831,727 100.0% 2,396,078 100.0%
- ---------------------------------------------------------------------------------------------------
- ------------------
(a) Based on units outstanding and most recently available data as of 4/23/98.
(b) Source: Vickers Stock Research Corporation and Bloomberg.
(c) AGE has 226,060 Common Units in its system.
Page 22
OVERVIEW OF GAS
RESEARCH COVERAGE
Gas has ongoing Research Coverage Date Published Estimates Updated
research coverage by ----------------- -------------- -----------------
two firms.
Published Research Reports
A.G. Edwards - Buy 1/5/98 4/8/98
PaineWebber - Attractive 12/30/97 2/5/98
Lehman 2/7/96 11/4/96
Earnings Estimates Number of Estimates Mean 1998 Mean 1999
------------------ ------------------- --------- ---------
IBES 2 $0.82 $0.85
Nelson 2 $0.52 $0.88
Zacks 2 $0.48 $0.88
Page 23
OVERVIEW OF GAS
DISCOUNTED CASH FLOW ANALYSIS
WEIGHTED AVERAGE COST OF CAPITAL DERIVATION
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Implied Total Total
Market Unit Total Market Debt/ Debt as % Un-
Levered Val. Debt Price at Units Value of Total of Total Levered
Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta
- ------------------------------------------------------------------------------------------------------------------------------------
AmeriGas Partners, L.P. 0.48 $777.8 $ 25.938 41.9 $1,108.6 70.2% 41.2% 0.282
Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264
Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210
Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227
National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208
Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195
Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203
--------------------------------------------------------
Gas' capitalization - at market (b)
Comparable group's average unlevered beta: 0.23 Total debt $ 96.0 40.8%
Gas' debt - to - equity ratio (b): 68.9% Common equity 139.4 59.2%
------ -----
Gas' debt as a percent of total capital (b): 40.8% $235.4 100.0%
--------------------------------------------------------
Comparable group's beta relevered for Gas' capital structure: 0.329
=====
DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL:
- -----------------------------------------------
MARKET RISK PREMIUM RANGE (d)
---------------------------------
11.3% 12.3% 13.3%
---------------------------------
Gas' theoretical levered beta: 0.329
Assumed % of equity in Gas' Capital structure (b): 59.2%
Risk - free rate of return (c): 5.7%
Gas' cost of equity range (at various market risk premiums): 9.4% 9.7% 10.1%
==== ==== =====
Gas' assumed tax rate: 35.0%
Assumed % of debt in capital structure (b): 40.8%
Gas' estimated cost of debt (e): 7.9%
Gas' estimated after - tax cost of debt: 5.2% 5.2% 5.2% 5.2%
---------------------------------
Gas' weighted average cost of capital range (f): 7.7% 7.9% 8.1%
---------------------------------
- ---------------------------
(a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the
number of weeks available, which may be less than 143) adjusted beta
relative to the S&P 500 index.
(b) Market value of debt is assumed to be equal to the book value; debt is not
net of cash.
(c) Ten - year Treasury rate on April 22, 1998.
(d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7%
minus the risk-free rate.
(e) Based on Gas' current debt structure.
(f) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
Page 24
OVERVIEW OF GAS
EBITDA RECONCILIATION: 1997 (a)
($ IN THOUSANDS)
-------------------------------------------------------------------------
GAS
---
1997 Actual EBITDA $19,703 (b)
NORMALIZING ADJUSTMENTS:
Weather
Residential - 1,125 gallons @ 0.7106 margin 799
Commercial - 277 gallons @ 0.4459 margin 124
Margin
Residential - 50,832 gallons @ (0.7106 - 0.6995) (564)
Commercial - 19,864 gallons @ (0.4454 - 0.4348) (220)
Wholesale - 38,404 gallons @ (0.0975 - 0.0675) (1,152)
Compensation (56)
Elimination of strategic expense 902 (c)
Pearl Gas EBITDA 3,012
Pearl Gas acquisition adjustments 273 (d)
-------
1997 Adjusted EBITDA $22,821
=======
-----------------
(a) Management's assumptions.
(b) Not pro forma for Pearl Gas acquisition.
(c) Certain expenses including the exploration of strategic
alternatives by Morgan Stanley.
(d) Certain cost savings, primarily salary and benefit expenses of
certain selling shareholders.
Page 25
OVERVIEW OF GAS
EBITDA RECONCILIATION: 1997-1999 (a)
($ IN THOUSANDS)
(continued)
-----------------------------------------------------------------------------
GAS
---
1998 EBITDA Budget $22,781
Actual Differential between first six months (4,502)
of Fiscal 1998 vs. Budget -------
Adjusted 1998 EBITDA Budget $18,279
=======
1998 EBITDA Budget $22,781
Internal Growth of 1.7% 379
Acquisition Growth
$20 million of acquisitions at 7x multiple
completed on 9/30/98 2,857
$10 million of acquisitions at 7x multiple
completed on 4/1/99 713
-------
1999 EBITDA Projection $26,730
=======
-----------------------------------------------------------------------------
(a) Management's assumptions.
Page 26
OVERVIEW OF GAS
ACQUISITION HISTORY
($ IN THOUSANDS)
-----------------------------------------------------------------------------
DATE EBITDA ACQUIRED COST PER
ACQUIRED COMPANY PURCHASE PRICE EBITDA MULTIPLE GALLONAGE GALLON
-------- ------- -------------- ------ -------- --------- ------
6/15/94 Loveland $ 700.0 $ 127.0 5.5x 433.0 $1.616
11/24/94 Baystate 1,450.0 209.0 6.9x 768.7 $1.886
9/12/95 Debolt 950.0 151.0 6.3x 852.3 $1.115
3/22/96 Bob While L.P. Gas/ 1,500.0 263.0 5.7x 897.7 $1.671
Mitchell Bottle Gas
7/22/96 Fuzzy Moore 850.0 147.0 5.8x 454.3 $1.871
10/22/97 Pearl Gas Co. 24,126.0 3,288.0 7.3x 14,000.0 $1.723
2/20/98 Tri-County Gas 550.0 108.0 5.1x 319.7 $1.720
--------- ------- --------
4 YEAR TOTALS $ 30,126 $ 4,293 7.Ox 17,726 $1.700
========= ======= ======= ======== ======
Pending Como 15,500.0 2,450.0 6.3x
Pending Tioga 4,100.0 625.0 6.6x
Page 27
OVERVIEW OF GAS
MARGIN ANALYSIS
(VOLUME IN GALLONS; GALLONS AND $ IN THOUSANDS, EXCEPT MARGINS)
- --------------------------------------------------------------------------------------------------------------------
FISCAL YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1997
---------- -------- -------- -------- ----------- --------
Stand alone Pro Forma
Weather
Residential
Volume 44,590 48,430 45,235 54,336 49,707 50,832
Margin $ 0.6902 $ 0.6861 $ 0.6677 $ 0.6592 $ 0.7106 $ 0.7106
---------- -------- -------- -------- --------- --------
Gross profit $ 30,777 $ 33,228 $ 30,203 $ 35,818 $ 35,322 $ 36,121
Commercial
Volume 17,617 19,875 18,831 21,194 19,587 19,864
Margin $ 0.4614 $ 0.4611 $ 0.4271 $ 0.4202 $ 0.4459 $ 0.4459
---------- -------- -------- -------- --------- --------
Gross profit $ 8,129 $ 9,164 $ 8,043 $ 8,906 $ 8,734 $ 8,858
Agriculture
Volume 23,291 16,053 15,080 12,567 17,338 17,338
Margin $ 0.2349 $ 0.2630 $ 0,2357 $ 0.2556 $ 0.2694 $ 0.2694
---------- -------- -------- -------- --------- --------
Gross profit $ 5,471 $ 4,222 $ 3,554 $ 3,212 $ 4,671 $ 4,671
Motor fuel & Other
Volume 7,581 8,060 8,056 8,197 8,024 8,024
Margin $ 0.4922 $ 0.5359 $ 0.5271 $ 0.5215 $ 0.5765 $ 0.5765
---------- -------- -------- -------- --------- --------
Gross profit $ 3,731 $ 4.319 $ 4,246 $ 4,275 $ 4,626 $ 4,626
Wholesale
Volume 51,493 45,318 38,941 39,025 38,404 38,404
Margin $ 0.0619 $ 0.0680 $ 0.0568 $ 0.0704 $ 0.0975 $ 0.0975
---------- -------- -------- -------- --------- --------
Gross profit $ 3,189 $ 3,082 $ 2,212 $ 2,747 $ 3,743 $ 3,743
Total Propane
Volume 144,572 137,736 126,143 135,319 133,060 134,462
Margin $ 0.3548 $ 0.3922 $ 0.3826 $ 0.4061 $ 0.4291 $ 0.4315
---------- -------- -------- -------- --------- --------
Total propane gross profit $ 51,297 $ 54,015 $ 48,258 $ 54,958 $ 57,096 $ 58,019
---------- -------- -------- -------- --------- --------
Appliances/other
Revenue $ 9,237 $ 9,454 $ 7,536 $ 8,269 $ 8,043 $ 8,043
Cost 3,232 3,187 1,935 2,150 2,191 2,191
---------- -------- -------- -------- --------- --------
Gross profit $ 6,005 $ 6,267 $ 5,601 $ 6,119 $ 5,852 $ 5,852
TOTAL GROSS PROFIT $ 57,302 $ 60,282 $ 53,859 $ 61,077 $ 62,948 $ 63,871
========== ======== ======== ======== ========= ========
- ------------------------------------------------------------------------------------------
FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------
1997 1998 1998
-------------------- ---------- --------------
Pro Forma Pearl and Budget Adjusted
Weather for actual
Residential
Volume 62,630 63,614 56,037
Margin $ 0.6554 $ 0.6436 $ 0.6585
---------- -------- --------
Gross profit $ 41,049 $ 40,945 $ 36,898
Commercial
Volume 20,936 20,521 19,126
Margin $ 0.4399 $ 0.4278 $ 0.4431
---------- -------- --------
Gross profit $ 9,209 $ 8,779 $ 8,474
Agriculture
Volume 18,275 16,615 18,224
Margin $ 0.2678 $ 0.2633 $ 0.2537
---------- -------- --------
Gross profit $ 4,895 $ 4,375 $ 4,624
Motor fuel & other
Volume 8,391 8,381 8,298
Margin $ 0.5926 $ 0.5845 $ 0.5924
---------- -------- --------
Gross profit $ 4,973 $ 4,899 $ 4,916
Wholesale
Volume 38,532 40,597 32,474
Margin $ 0.0972 $ 0.0674 $ 0.0604
---------- -------- --------
Gross profit $ 3,744 $ 2,738 $ 1,961
Total propane
Volume 148,764 149,728 134,159
Margin $ 0.4293 $ 0.4123 $ 0.4239
---------- -------- --------
Total propane gross profit $ 63,870 $ 61,735 $ 56,874
Appliances/other
Revenue $ 8,760 $ 8,694 $ 8,509
Cost 2,303 2,298 2,399
---------- -------- --------
Gross profit $ 6,457 $ 6,396 $ 6,110
TOTAL GROSS PROFIT $ 70,327 $ 68,130 $ 62,983
========== ======== ========
Page 28
PRO FORMA OWNERSHIP ANALYSIS
GAS
CURRENT OWNERSHIP AND ORGANIZATION
[CHART APPEARS HERE]
Page 29
PRO FORMA OWNERSHIP ANALYSIS
EFFECTIVE OWNERSHIP OF GAS - CURRENT
CURRENTLY, THE DIRECTORS
AND OFFICERS OF OIL
EFFECTIVELY CONTROL 100%
OF OIL (IN TERMS OF [CHART APPEARS HERE]
VOTING RIGHTS), 100% OF
GAS' GP INTEREST, AND
CONTROL 39% OF GAS'
LIMITED PARTNERSHIP UNITS.
Page 30
SUMMARY OF TRANSACTION
PRO FORMA GAS UNITS OUTSTANDING
(IN THOUSANDS)
TO SIMPLIFY THE [_] There are currently 6,355 Gas units
COMPLEXITY OF THE STEPS outstanding comprised of 3,832 common units,
IN THE TRANSACTION, 2,396 subordinated units and 127 general
A.G. EDWARDS PREPARED partner ("GP") units. The subordinated units
A SUMMARY OF ITS and GP units are assets of Oil.
UNDERSTANDING.
[_] There are currently 26,563 shares of Oil
common stock outstanding, comprised of public
shareholders and "insiders." The public holds
17,160 Class A shares. The "insiders" hold
9,404 shares which include 6,795 Class A
shares, 11 Class B shares and 2,598 Class C
shares.
[_] Each shareholder of Oil will receive a
certain number of units in Gas such that the
implied consideration paid for each Oil share
is $3.15.
[_] The publicly held 17,160 Class A shares will
receive .1596 shares of newly created Senior
Subordinated units (2,738 units in total)
with an implied value of $19.74/unit. This
represents an implied purchase price of
$3.15/share for an implied total purchase
price of $54.1 million.
[_] The "insiders" of Oil, who hold a total of
9,404 shares (comprised of A, B and C shares)
will also receive $3.15/share for a total of
$29.6 million. The consideration received by
these shareholders will be funded by:
- (1) the distribution of existing units
of Gas which are currently owned by
Oil
[_] all of the 127 GP units owned
by Oil will be given as
consideration at an implied
value of $21.28/unit, for a
total of $2.7 million.
[_] 754 of the 2,396 Subordinated
units owned by Oil will be
given as consideration at an
implied value of $16.33/unit,
for a total of $12.3 million.
- (2) the distribution of newly-created
units of Gas
[_] to fund the remaining $14.6
million of the $29.6 million
due to the Oil "insiders", Gas
will issue 559 newly-created
Senior Subordinated units and
168 newly-created GP units.
The implied values for these
new units are $19.74 and
$21.28, respectively.
Page 31
SUMMARY OF TRANSACTION
PRO FORMA GAS UNITS OUTSTANDING
(IN THOUSANDS)
(continued)
[_] Of the 2,396 Subordinated units and 127 GP
units owned by Oil, only 1,642 Subordinated
units will not have been used as
consideration paid to the "inside" Oil
shareholders. Hence, these 1,642 Subordinated
units will be retired by Gas. A.G. Edwards
has assumed that the implied value of these
units are $16.33/unit for a total retired
value of approximately $26.8 million.
Page 32
SUMMARY OF GAS UNITS OUTSTANDING
PRE-FINANCING ASSUMPTIONS
------------------------------------------------------------------------------------------------
Distributed to Oil Issued to Oil
------------------ -----------------
Type of Units Current Public Insiders Public Insiders Retired Pro Forma
------------- ------- ------ -------- ------ -------- ------- ---------
Common 3,832 - - - - - 3,832
Senior Subordinated - - - 2,738 559 - 3,297
Subordinated 2,396 - 754 - - 1,642 754
General Partner (a) 127 - 127 - 168 - 295
------ ---------
6,355 8,178
________________________
(a) The number of GP units issued reflect the assumption of a 6,587 common
unit equity offering to refinance certain of the assumed Oil debt.
Hence, the number of GP units reflected in the pro forma column do not
equal 2% of the pro forma outstanding units shown above but do equal
exactly 2% of the pro forma units outstanding on a post financing
basis.
Page 33
EQUITY PURCHASE PRICE CALCULATION
IMPLIED EQUITY VALUE OF OIL'S ASSETS
(units in thousands, $ in millions, except per unit amounts)
- --------------------------------------------------------------------------------------------------------------------------------
Purchase Price of Oil's Equity Purchase Price of Oil's Equity
------------------------------ --------------------------------------------------------
Value of Securities Equity Value of Oil's Value of Oil's GP and
Event Paid of Oil Shareholders Heating Oil Assets Subordinated Units in Star
- --------------------------------- ------------------------------ -------------------------- ---------------------------
Issuance of Senior Subordinated
Units to Public Oil Shareholders 2,738 x $19.74
-------------------
$54.1 $54.1 -
Distribution of General Partner
Units to Inside Oil Shareholders 127 x $21.28
-------------------
$2.7 - $2.7
Distribution of Subordinated
Units of Inside Oil Shareholders 754 x $16.33
-------------------
$12.3 - $12.3
Issuance of General Partner
Units to Inside Oil Shareholders 168 x $21.28
-------------------
$3.6 $3.6 -
Issuance of Senior Subordinated
Units to Inside Oil Shareholders 559 x $19.74
-------------------
$11.0 $11.0 -
Retire Subordinated Units 1,642 x $16.33
-------------------
($26.8) $26.8
$41.8 $41.8
----- ---------------------------------
Total $83.7 $83.7
Divided by 26,563 shares of Oil's
Common Stock= $3.15 per share
Page 34
PREMIUM PAID ANALYSIS
- --------------------------------------------------------------------------------
Dollars
STOCK PRICE PREMIUM ANALYSIS (a) in thousands Notes
- ----------------------------------------------- ------------ ------
Equity purchase price of Oil $83,673 $3.15 share price x 26,563 shares.
Premium to stock price one day prior 93.8% $1.625 close on April 22, 1998.
Premium to stock price one month prior 101.6%
Premium to stock price three months prior 26.0%
Premium to stock price six months prior 0.8%
PURCHASE PRICE
- ------------------------------------------------
Equity purchase price of heating oil assets $ 41,847 See appendix F, page 40.
Debt assumption value (b) 349,587
--------
Aggregate purchase price of heating oil assets $391,434
========
MULTIPLES Notes
- --------------------------------------------- ----------------------- -----------------------------------------------
Multiples
-----------------------
1997 Revenue $548,141 0.71 x As a multiple of aggregate transaction value.
1997 EBITDA (c) 36,010 10.87 As a multiple of aggregate transaction value.
1997 EBIT (d) 6,264 62.49 As a multiple of aggregate transaction value.
1997 Net loss to common shares (d) ($19,338) NM As a multiple of equity value.
Equity (e) (117,033) NM As a multiple of equity value.
1997 Adjusted EBITDA (c) 43,040 9.09 x As a multiple of aggregate transaction value.
1998 EBITDA budget (c) 43,440 9.01 As a multiple of aggregate transaction value.
Adj. 1998 EBITDA budget (c) 38,500 10.17 As a multiple of aggregate transaction value.
1999P EBITDA (c) 51,657 7.58 As a multiple of aggregate transaction value.
______________________________________________
(a) Updated through April 22, 1998.
(b) Includes cost of debt at assumed redemption value, preferred stock at
assumed redemption value, transaction fees, and certain off-balance sheet
liabilities, net of excess cash. See appendix F, page 40.
(c) Calculated as gross profit minus SG&A expense and direct delivery expense.
See appendix D, pages 9 through 13.
(d) Excludes restructuring charge, pension curtailment expense, provision for
supplemental benefits and corporate identity expenses.
(e) As of 12/31/97.
Page 35
MERGERS OF EQUALS PREMIUM ANALYSIS(a)
$100 MILLION AND GREATER
1/1/94 - 4/22/98
- -----------------------------------------------------------------------------------------------------------------------------------
Exchange Exchange
Value of Ratio Ratio
Date Date Transaction Exchange 1 Day 1 Week
Annc'd Effective Target Name Acquiror Name ($ mil) Ratio Prior Prior
- ------------------------------------------------------------------------------------------------------------------------------------
12/23/97 03/27/98 United Meridian Corp Ocean Energy Inc 1,331.7 0.556 0.645 0.565
09/02/97 12/19/97 Doubletree Corp Promus Hotel Corp 2,207.6 1.081 1.288 1.133
08/25/97 12/17/97 Mosinee Paper Corp Wausau Paper Mills Co 497.1 1.400 1.211 1.238
07/10/97 12/31/97 Reading & Bates Corp Falcon Drilling Co 2,587.0 0.590 0.506 0.485
06/30/97 12/23/97 Rykoff-Sexton Inc JP Foodservice Inc 1,404.3 0.840 0.652 0.668
05/27/97 12/18/97 HFS Inc CUC International Inc 11,342.9 2.403 2.268 2.443
05/12/97 09/09/97 Smith's Food & Drug Centers Fred Meyer(Kohlberg Kravis) 2,018.0 1.050 0.955 0.878
05/06/97 07/22/97 BW/IP Inc Durco International Inc 530.7 0.697 0.737 0.657
10/01/96 04/01/97 Health Systems International Foundation Health Corp 1,277.4 0.769 0.838 0.770
08/02/96 11/07/96 Colonial Data Technologies US Order Inc 186.5 1.000 0.792 0.800
07/18/96 02/12/97 ROC Communities Inc Chateau Properties Inc 288.6 1.042 0.984 1.040
04/22/96 08/15/97 NYNEX Corp Bell Atlantic Corp 21,345.5 0.768 0.815 0.835
06/13/95 10/27/95 First Financial Management First Data Corp 5,757.5 1.586 1.349 1.300
03/02/95 06/28/95 Abbey Healthcare Group Inc. Homedco Group Inc. 658.7 0.700 0.641 0.664
08/30/94 03/15/95 Lockheed Corp Martin Marietta Corp 5,204.1 1.630 1.368 1.321
- --------------------------------------------------------------------------------------------------------------------------------
Exchange Acq/ Acq/ Premium
Ratio Target Target Exchange
Date Date 4 Weeks Equity Total 1 Day
Annc'd Effective Target Name Acquiror Name Prior Mkt Cap Mkt Cap Prior
- --------------------------------------------------------------------------------------------------------------------------------
12/23/97 03/27/98 United Meridian Corp Ocean Energy Inc 0.557 0.97 1.13 -13.9%
09/02/97 12/19/97 Doubletree Corp Promus Hotel Corp 1.153 1.13 0.96 -16.1%
08/25/97 12/17/97 Mosinee Paper Corp Wausau Paper Mills Co 1.419 1.94 1.88 15.6%
07/10/97 12/31/97 Reading & Bates Corp Falcon Drilling Co 0.535 2.26 2.12 16.5%
06/30/97 12/23/97 Rykoff-Sexton Inc JP Foodservice Inc 0.671 1.19 0.82 28.9%
05/27/97 12/18/97 HFS Inc CUC International Inc 2.765 1.06 0.89 5.9%
05/12/97 09/09/97 Smith's Food & Drug Centers Fred Meyer(Kohlberg Kravis) 0.891 1.92 0.89 9.9%
05/06/97 07/22/97 BWAP Inc Durco International Inc 0.714 1.47 1.32 5.4%
10/01/96 04/01/97 Health Systems International Foundation Health Corp 0.824 1.58 1.28 8.2%
08/02/96 11/07/96 Colonial Data Technologies US Order Inc 0.990 1.28 1.46 26.3%
07/18/96 02/12/97 ROC Communities Inc Chateau Properties Inc 1.039 0.47 0.76 5.9%
04/22/96 08/15/97 NYNEX Corp Bell Atlantic Corp 0.790 1.20 1.04 5.8%
06/13/95 10/27/95 First Financial Management First Data Corp 1.263 1.39 1.39 17.5%
03/02/95 06/28/95 Abbey Healthcare Group Inc. Homedco Group Inc. 0.658 1.59 1.24 9.3%
08/30/94 03/15/95 Lockheed Corp Martin Marietta Corp 1.360 1.16 1.17 19.2%
- -----------------------------------------------------------------------------------------------------------------
Premium Premium
Exchange Exchange
Date Date 1 Week 4 Weeks
Annc'd Effective Target Name Acquiror Name Prior Prior
- -----------------------------------------------------------------------------------------------------------------
12/23/97 03/27/98 United Meridian Corp Ocean Energy Inc -1.7% -0.2%
09/02/97 12/19/97 Doubletree Corp Promus Hotel Corp -4.6% -6.2%
08/25/97 12/17/97 Mosinee Paper Corp Wausau Paper Mills Co 13.1% -1.3%
07/10/97 12/31/97 Reading & Bates Corp Falcon Drilling Co 21.6% 10.3%
06/30/97 12/23/97 Rykoff-Sexton Inc JP Foodservice Inc 25.7% 25.1%
05/27/97 12/18/97 HFS Inc CUC International Inc -1.6% -13.1%
05/12/97 09/09/97 Smith's Food & Drug Centers Fred Meyer(Kohlberg Kravis) 19.6% 17.9%
05/06/97 07/22/97 BWAP Inc Durco International Inc -6.2% 2.4%
10/01/96 04/01/97 Health Systems International Foundation Health Corp 0.1% 6.6%
08/02/96 11/07/96 Colonial Data Technologies US Order Inc 25.0% 1.0%
07/18/96 02/12/97 ROC Communities Inc Chateau Properties Inc 0.2% 0.2%
04/22/96 08/15/97 NYNEX Corp Bell Atlantic Corp 8.0% 2.8%
06/13/95 10/27/95 First Financial Management First Data Corp 22.0% 25.6%
03/02/95 06/28/95 Abbey Healthcare Group Inc. Homedco Group Inc. 5.5% 6.4%
08/30/94 03/15/95 Lockheed Corp Martin Marietta Corp 23.4% 19.9%
Premium Premium Premium
Exchange Exchange Exchange
1 Day 1 Week 4 Weeks
Prior Prior Prior
- ----------------------------------------------
MEAN 9.6% 10.0% 6.5%
MEDIAN 9.3% 8.0% 2.8%
ADJ. MEAN (B) 10.1% 10.0% 6.5%
- ----------------------------------------------
- --------------------------------------------------------------------------------
(a) "Merger of Equals" is defined as a merger of two companies of similar
market cap size. It does not imply any similarity of business between the
target and acquiror, nor does it imply any change of control of either
company post-merger. Excludes financial institutions.
(b) Adjusted Mean excludes highest and lowest data points
Source: Securities Data Company, Inc. and Bloomberg
Page 36
Merger of Equals Premium Analysis (a)
[Chart appears here]
------------------
(a) "Merger of Equals" is defined as a merger of two companies of
similar market cap size. It does not imply any similarity
of business between the target and acquiror, nor does it
imply any change of control of either company post-merger.
Excludes financial institutions.
Page 37
Exchange Ratio Analysis
Relative to current
prices, the exchange Gas Unit Price/Oil Stock Price
ratio at $3.15 is low, 12/15/95 - 4/22/98
however, it is in line
with the average prices
of the companies' equity
over the past two years. [Chart appears here]
Factset: Daily
(a) Represents the current price of Gas divided by
the current price of Oil.
(b) Represents the current price of Gas divided by
the proposed $3.15 price per share of Oil.
(c) Represents Gas' average price for the period
divided by Oil's average price for the period.
Page 38
Exchange Ratio Analysis
Comparative Stock Price Performance
While Gas' unit price
has remained relatively Indexed Stock Price Performance
flat, Oil's stock price 12/15/95 - 4/22/98
has declined
significantly in the past
year. [Chart appears here]
Premium of Current Price to Price
---------------------------------
Current 2 Years 1 Year 180 Days 60 Days 30 Days
Price (b) Prior Prior Prior Prior Prior
---------------------------------------------------------
Gas 21.94 5.1% 1.4% -2.0% -6.2% -0.3%
Oil 1.63 -76.8% -45.8% -48.1% -35.0% 0.9%
Composite (a) 21.96 -2.2% 6.4% -5.4% -4.4% 1.3%
(a) Composite index includes the following companies: APU, CNO, HPG, FGP,
NPL, SPH.
(b) As of 4/22/98
Page 39
TRANSACTION MULTIPLE ANALYSIS
FIRM VALUATION
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Purchase Price of Heating Oil Assets $ 41,847,360
+ Cost of Debt at Redemption Value 290,992,000
+ Cost of Preferred stock at Redemption Value 34,375,000
+ Transaction Fees 17,743,000
349,587,000
+ Off-Balance Sheet Pension and Tax Liability 8,500,000
- Excess Cash
Oil's cash balance at 9/30/98 13,005,000
Required cash on hand (500,000)
"Unearned MQD" (a) (2,497,025)
Additional Surplus (b) (7,984,975) 2,023,000
-------------
Firm Value $ 391,434,360
=============
________________________________________________________________________________
(a) Comprised of total new units multiplied by the quarterly distribution
payable immediately following the transaction of $0.575 plus the original
units multiplied by the incremental distribution required by the higher
distribution of $0.025, all divided by two for the assumption of a mid-
quarter closing.
(b) Assumes an additional Surplus of $0.95 per new unit is set aside.
TRANSACTION MULTIPLE ANALYSIS
TRANSACTION MULTIPLES FOR FIRM VALUATION
================================================================================
EBITDA
------------------------------------------
Purchase Price Year Amount Multiple Paid
- -------------- -------------------- ---------------- ----------------
$391,434,360 1997 Adjusted $43,040,000 9.1x
$391,434,360 Adjusted 1998 Budget $38,500,000 10.2x
$391,434,360 1999 Projected $51,657,000 7.6x
Page 41
TRANSACTION MULTIPLE ANALYSIS
DISTRIBUTION OF VALUE
- --------------------------------------------------------------------------------
OIL
1997 Adjusted EBITDA
EBITDA Multiple Purchase Price
- -------------- ---------- ----------------
$43,040,000 9.1x $391,434,360
ABILITY TO FURTHER CONSOLIDATE HEATING OIL INDUSTRY CORE BUSINESS
- --------------------------------------------------- -------------
Acquisition EBITDA $ 43,040,000
EBITDA Multiple Purchase Price EBITDA Decline Rate 7.75% (a)
- -------------- ------------- -----------------
$6,315,789 4.75x $ 30,000,000 WACC 7.85% (b)
Decline Rate 7.75% (a)
WACC 7.85% (b)
Perpetuity $ 40,477,946
Purchase Price $ 30,000,000
--------------
Net Present Value of
the Heating Oil Acq. $ 10,477,946
Value in perpetuity of Ability to
-------------- -------------
Consolidate Heating Oil Industry $133,425,382 Value Of Core Business $275,843,712
============== =============
- ---------------------------------------------------------------------------
Implied Total Valuation $409,269,094
% of Valuation attributable to core business 67.4%
% of Valuation attributable to consolidation opportunities 32.6%
- ---------------------------------------------------------------------------
(a) A.G. Edwards' estimate of the decline rate of EBITDA based on a 4.1%
attrition rate.
(b) See page 57.
Page 42
TRANSACTION MULTIPLE ANALYSIS
TRANSACTION MULTIPLES FOR EXISTING HEATING OIL BUSINESS
================================================================================
Revised EBITDA
----------------------------------------
Purchase Price (a) Year Amount Multiple Paid
- ------------------ --------------------- ---------------- -------------
$263,823,260 1997 Adjusted $43,040,000 6.1x
$263,823,260 Adjusted 1998 Budget $38,500,000 6.9x
$263,823,260 1999 Projected $51,657,000 5.1x
- --------------------------------------------------------------------------------
(a) Represents A.G. Edwards' estimate of the portion of the $391 million price
being paid for Oil's heating oil business that can be attributable to its
core business. Calculation: $391 million x 67.4%. See page 42.
Page 43
RELATIVE CONTRIBUTION ANALYSIS (a)
($ IN THOUSANDS)
Gas' EBITDA
Contribution
96-97 35.4% [CHART APPEARS HERE]
98-99 33.3%
96-99 34.3%
For Gas' contribution IMPLIED FIRM VALUE
of approximately 34% APRIL 22, 1998
of the combined entity's
EBITDA, it will receive IMPLIED FIRM VALUE (TRANSACTION)
approximately 37% of the APRIL 22, 1998
implied firm value.
[CHART APPEARS HERE]
__________________
(a) For purposes of its analysis, A.G. Edwards converted Oil's historical
December 31st fiscal year-end to a September 30th fiscal year-end for
comparison purposes. Oil's projections are based on a December 31st
calendar year end. Other measures of relative contribution analysis are
non-meaningful.
(b) Includes only heating oil EBITDA for Oil.
(c) Firm value for all of Oil.
(d) Implied firm value of only Oil's heating oil assets.
Page 44
ACCRETION/DILUTION ANALYSIS
VARIATIONS IN ATTRITION RATES, MARGIN GROWTH RATES, AND ACQUISITION ASSUMPTIONS
====================================================================================================================================
4.1% Attrition
Gas $0.01 Margin growth Attrition Margin Growth
--------------------- ---------------------
Stand-alone $30.0mm at 4.75x Acquisitions 6.00% 2.00% $0.000 $0.015
------------- ------------------------------- --------- -------- --------- ---------
--------
DCF per unit
1998E (a) $1.270 $1.570 $1.570 $1.570 $1.570 $1.570
1998N (b) 1.930 2.190 2.190 2.190 2.190 2.190
1999P 2.250 3.200 3.080 3.330 2.910 3.350
Accretion/Dilution
1998E (a) 23.6% 23.6% 23.6% 23.6% 23.6%
1998N (b) 13.5% 13.5% 13.5% 13.5% 13.5%
1999P 42.2% 36.9% 48.0% 29.3% 48.9%
Common unit coverage
1998E (a) 0.94x 0.99x 0.99x 0.99x 0.99x 0.99x
1998N (b) 1.42 1.38 1.38 1.38 1.38 1.38
1999P 1.66 1.93 1.86 2.01 1.76 2.02
Total unit coverage
1998E (a) 0.58x 0.71x 0.71x 0.71x 0.71x 0.71x
1998N (b) 0.88 0.99 0.99 0.99 0.99 0.99
1999P 1.02 1.39 1.34 1.45 1.26 1.45
--------
4.1% Attrition
Acquisitions $0.015 Margin growth
------------
$50mm at 5.75x $50.0mm at 5.75x Acquisitions
-------------- -------------------------------
DCF per unit
1998E (a) $1.570 $1.570
1998N (b) 2.190 2.190
1999P 3.480 3.640
Accretion/Dilution
1998E (a) 23.6% 23.6%
1998N (b) 13.5% 13.5%
1999P 54.7% 61.8%
Common unit coverage
1998E (a) 0.99x 0.99x
1998N (b) 1.38 1.38
1999P 2.10 2.20
Total unit coverage
1998E (a) 0.71x 0.71x
1998N (b) 0.99 0.99
1999P 1.51 1.58
- ---------------------------------------------------
(a) 1998 estimate assumes no acquisitions for either company, and is adjusted to
reflect actual results through 3/31/98.
(b) 1998 budgeted.
Page 45
PUBLIC COMPANY ANALYSIS
[_] A.G. Edwards compared certain financial and market information of Gas on a
historical and pro forma basis to that of certain public master limited
partnerships which A.G. Edwards deemed relevant for the purposes of this
analysis. A.G. Edwards reviewed the trading multiples from a total of 6
public propane master limited partnerships.
[_] The selected propane master limited partnerships are as follows:
- AmeriGas Partners, L.P. - Heritage Propane Partners, L.P.
- Cornerstone Propane Partners, L.P. - National Propane Partners, L.P.
- Ferrellgas Partners, L.P. - Suburban Propane Partners, L.P.
[_] No company used in the analysis is identical to Gas.
PUBLIC COMPARABLE COMPANIES (A)
- ---------------------------------------------------------------------------------------------------------
PUBLIC PUBLIC
PRO FORMA COMPANY COMPANY
GAS GAS MEDIANS RANGES
- ---------------------------------------------------------------------------------------------------------
Yield 10.0% 10.5% 9.6% 8.5% to 10.6%
Firm value/LTM EBITDA 12.7x (b) 10.8x (b) 12.5x 9.8x to 16.7x
Firm value/1998 normalized EBITDA 8.7x (c) 7.9x (c) 11.5x 10.3x to 13.7x
Equity Market Cap/LTM DCF 18.0x (d) 14.0x (d) 15.7x 9.4x to 25.5x
Equity Market Cap/1998 normalized DCF 9.7x (e) 7.5x (e) 13.9x 11.6x to 16.9x
LTM common unit coverage O.9x (f) l.Ox (f) 1.4x 0.6x to 1.5x
1998E common unit coverage 1.7x (g) 1.8x (g) 1.4x 0.9x to 1.9x
LTM total unit coverage 0.6x (h) 0.7x (h) 0.7x 0.4x to l.Ox
1998E total unit coverage l.Ox (i) 1.3x (i) 0.7x 0.7x to l.Ox
- ---------------------------------------------------------------------------------------------------------
(a) Public comparable companies include: APU, CNO, (f) Adjusted 1998 budget.
FGP, HPG, CNL and SPH. (g) 1999 estimates.
(b) Firm value/adjusted 1998 budget EBITDA. (h) Adjusted 1998 budget.
(c) Firm value/1999 estimated EBITDA. (i) 1999 estimates.
(d) Equity market cap/adjusted 1998 budget EBITDA.
(e) Equity market cap/1999 estimated DCF.
Page 46
PUBLIC COMPANY ANALYSIS
($ IN MILLIONS, EXCEPT PER UNIT DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
Closing Implied Implied Common
Price On Market Value Firm Distribution Units/
Company Ticker (4/22/98) Of Equity Value Per Unit Yield Total Units
- ------------------------------------------------------------------------------------------------------------------------------------
Gas (a) $21.938 $ 139.4 $ 232.0 $ 2.20 10.0% 60.3%
AmeriGas Partners, L.P. APU 25.938 1,108.6 1,867.2 2.20 8.5% 52.8%
Cornerstone Propane Partners, L.P. (d) CNO 22.688 455.7 671.7 2.16 9.5% 66.5%
Ferrellgas Partners, L.P. (e) FGP 20.875 666.6 1,192.3 2.00 9.6% 47.0%
Heritage Propane Partners, L.P. HPG 23.125 197.8 371.8 2.00 8.6% 55.8%
National Propane Partners, L.P. NPL 20.313 232.9 375.6 2.10 10.3% 59.6%
Suburban Propane Partners, L.P. (f) SPH 18.813 551.4 942.0 2.00 10.6% 75.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Mean 9.5% 59.5%
Median 9.6% 57.7%
====================================================================================================================================
PRO FORMA $ 21.938 $ 323.9 (g) $ 621.2 (h) $ 2.30 10.5% 70.6%
- ------------------------------------------------------------------------------------------------------------------------------------
LTM Distributable Cash Flow/ FY98E Distributable Cash Flow/
---------------------------------- --------------------------------
Distribution To Distribution FY98E Distribution To Distribution
Company Common Units To Total Units DCF/Unit Common Units To Total Units
- ------------------------------------------------------------------------------------------------------------------------------------
Gas (a) 0.9x (b) 0.6x (b) $2.25 (c) 1.7x (c) 1.0x (c)
AmeriGas Partners, L.P. 1.5x 0.8x 2.14 1.9x 1.0x
Cornerstone Propane Partners, L.P. (d) 0.6x 0.4x 1.47 1.1x 0.7x
Ferrellgas Partners, L.P. (e) 1.4x 0.7x 1.34 1.4x 0.7x
Heritage Propane Partners, L.P. 1.3x 0.8x 2.01 1.8x 1.0x
National Propane Partners, L.P. 0.9x 0.5x 1.60 1.3x 0.8x
Suburban Propane Partners, L.P. (f) 1.4x 1.0x 1.41 0.9x 0.7x
- ------------------------------------------------------------------------------------------------------------------------------------
Mean 1.2x 0.7x 1.4x 0.8x
Median 1.4x 0.7x 1.4x 0.7x
====================================================================================================================================
PRO FORMA 1.0x (b) 0.7x 2.91 (c) 1.8x (c) 1.3x (c)
____________________________________
1998 estimates per A.G. Edwards' research, except for Gas, Oil, and Pro Forma.
Implied Firm Value equals common, subordinated and GP units, mulitiplied by the
market price of common units plus debt, less cash.
(a) Pro forma for the Pearl Gas acquisition and the common unit offering. Fiscal
1997 maintenance capital expenditure used as LTM figure.
(b) For Gas and Pro forma only, LTM DCF figures are adjusted 1998 budget, DCF
estimates.
(c) For Gas and Pro forma only, FY98E DCF figures are 1999 DCF estimates.
(d) Financial information pro forma for common unit offering. Maintenance
capital expenditures assumed to be 8% of EBITDA due to lack of disclosure.
(e) Maintenance capital expenditure assumed to be 8% of EBITDA due to lack of
disclosure.
(f) Financial figures exclude $5.1 million gain from sale of minority interest.
(g) 14,764 units at $21.9375.
(h) $323.3 in equity plus $308.316 pro forma debt (see page 56), less $10.982
cash.
Page 47
PUBLIC COMPANY ANALYSIS
- -------------------------------------------------------------------------------------------------------------------------
Long Term LTM Firm Value/ Firm Value/ Equity Equity
Debt/ EBITDA/ LTM 1998E Market Cap/ Market Cap/
Firm Value Int. Exp. EBITDA EBITDA LTM DCF 1998E DCF
- -------------------------------------------------------------------------------------------------------------------------
Gas 41.4% 2.3x (a) 12.7x (a) 8.7x (b) 18.0x (c) 9.7x (d)
Amerigas Partners, L.P. 37.3% 2.2x 12.6x 12.1x 15.5x 14.1x
Cornerstone Propane Partners, L.P. 35.1% 2.1x 16.7x 13.7x 25.5x 16.9x
Ferrellgas Partners, L.P. 41.5% 2.1x 12.5x 12.0x 15.8x 15.9x
Heritage Propane Partners, L.P. 46.0% 2.6x 10.9x 10.6x 15.7x 11.6x
National Propane Partners, L.P. 36.8% 3.2x 16.3x 11.0x 18.0x 13.0x
Suburban Propane Partners, L.P. 45.5% 2.9x 9.8x 10.3x 9.4x 13.6x
- -------------------------------------------------------------------------------------------------------------------------
Mean 40.4% 2.5x 13.1x 11.6x 16.6x 14.2x
Median 39.4% 2.4x 12.5x 11.5x 15.7x 13.9x
- -------------------------------------------------------------------------------------------------------------------------
Pro Forma 49.6% 2.1x (a) 10.8x (a) 7.9x (b) 14.0x (c) 7.5x (d)
- -------------------------------------------------------------
EBITDA is defined as net income (loss) before extraordinary items plus interest,
income taxes, depreciation and amortization, impairment expense, and other non-
recurring and non-operating items.
(a) For Gas and Pro Forma only, LTM EBITDA figures are adjusted 1998 budget
estimates.
(b) For Gas and Pro Forma only, 1998E EBITDA figures are 1999 estimates.
(c) For Gas and Pro Forma only, LTM DCF figures are adjusted 1998 budget DCF
estimates.
(d) For Gas and Pro Forma only, 1998E DCF figures are 1999 DCF estimates.
PUBLIC COMPANY DESCRIPTIONS
AMERIGAS PARTNERS, LP. AmeriGas Partners operates the largest retail
propane distribution business in the U.S., serving
approximately 968,000 residential, commercial,
industrial, agricultural, and motor-fuel customers
in 45 states. AmeriGas Partners also sells
propane-related supplies and equipment, including
home appliances. The company owns or leases a
fleet of about 385 transport trucks, 680 railroad
tank cars, and 2,300 bobtail and rack trucks. It
also owns or leases propane-storage facilities in
Arizona and Rhode Island. AmeriGas Propane, a
wholly owned subsidiary of UGI Corp., owns 58% of
AmeriGas Partners.
[GRAPH APPEARS HERE]
CORNERSTONE PROPANE Cornerstone Propane Partners, L.P. distributes
PARTNERS, L.P. propane for residential, commercial, industrial,
agricultural and other retail uses; markets and
distributes propane and natural gas liquids;
services propane heating systems and appliances;
and sells propane-related supplies, appliances and
other equipment. It is the fifth largest retail
marketer of propane in the U.S. in terms of
volume. The partnership's operations are
concentrated in the east coast, south-central and
west coast regions of the U.S.
[GRAPH APPEARS HERE]
Page 49
PUBLIC COMPANY DESCRIPTIONS
(continued)
FERRELLGAS PARTNERS, L.P. Ferrellgas is the second largest U.S. distributor
of propane serving more than 800,000 residential
and commercial customers. The company also engages
in propane/natural gas trading, wholesale propane
marketing, and chemical feedstock marketing. It
markets its products primarily in the Midwest, the
Great Lakes area, and the Southeast. With a
delivery fleet of approximately 4,000 vehicles,
Ferrellgas sells almost 700 million gallons of
fuel annually to its retail customers, which
represents about 8% of all retail propane bought
in the U.S. The company has acquired more than 100
companies in 11 years.
[GRAPH APPEARS HERE]
HERITAGE PROPANE Heritage Propane Partners distributes propane to
PARTNERS, LP. more than 220,000 residential, commercial,
industrial, and agricultural customers. The
propane is used primarily for heating, drying,
cooking, as fuel for engines, as a cutting gas for
mining operations, and for curing tobacco. The
company's retail operations distribute propane to
customers in 23 states in the western,
southeastern, and northeastern U.S. The company
also distributes wholesale propane and sells,
installs, and repairs propane-related equipment.
Heritage has acquired 40 retail propane operations
since 1989, bringing annual propane sales to over
125 million gallons.
[GRAPH APPEARS HERE]
Page 50
PUBLIC COMPANY DESCRIPTIONS
(continued)
NATIONAL PROPANE National Propane L.P. markets propane on a retail
PARTNERS, L.P. basis to residential, commercial, industrial and
agricultural customers and dealers in 25 states;
and also sells propane-related supplies and
equipment, including home and commercial
appliances. It is the sixth largest retail
marketer of propane in the U.S. in terms of
volume, supplying approximately 250,000 active
retail and wholesale customers in 25 states
through 166 service centers located in 24 states.
Operations are concentrated in the Midwest,
Northeast, Southeast and Southwest regions of the
U.S.
[GRAPH APPEARS HERE]
SUBURBAN PROPANE Suburban Propane Partners markets and distributes
PARTNERS, L.P. propane to residential, commercial, industrial and
agricultural customers through a retail
distribution network consisting of 352 district
locations in 41 states. The company, the third
largest retail marketer of propane in the U.S.,
serves over 730,000 active customers primarily
located in the east and west coast regions of the
country. Suburban Propane also sells, installs and
services equipment related to its propane
distribution business, including heating and
cooking appliances and, at some locations, propane
fuel systems.
[GRAPH APPEARS HERE]
Page 51
DISCOUNTED CASH FLOW ANALYSIS
GAS - STAND ALONE
($ IN THOUSANDS)
-----------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT SUMMARY (a): 1998 1999 2000 2001 2002 Terminal
--------- ---------- ---------- ---------- ---------- -----------------
EBITDA 18,279 26,730 28,541 30,361 32,188
% increase 46.2% 6.8% 6.4% 6.0%
Net income (1,321) 3,691 3,554 3,779 4,198
CASH FLOW SUMMARY:
- ------------------
After-tax EBI 12,805 13,582 14,527 15,474
Depreciation and amortization 13,900 14,934 15,809 16,689
Maintenance capital expenditures (3,274) (3,395) (3,694) (3,816)
Working capital increases (500) (500) (500) (500)
---------- ---------- ---------- ----------
Net operating cash flow (free cash flow) 22,931 24,621 26,142 27,847
--------------
Weighted average cost of capital (b) 7.9%
--------------
--------------
Terminal EBITDA multiple (c) 10.2x
--------------
Discount factor (d) 0.9629 0.8927 0.8276 0.7673 0.7388
Terminal value (e) $328,318
--------------
Present value $329,620 $22,079 $21,979 $21,635 $21,367 $242,560
-------------- ---------- ---------- ---------- ---------- ----------------
Current net debt (f) ($102,956)
--------------
Net present value of equity $226,664
==============
Common units/Total units (g) 60.3%
--------------
Equity value to common units (h) $136,669
--------------
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Based on management projections.
(b) Based on comparable companies' WACC. See Weighted Average Cost of Capital
analysis.
(c) Gas' current firm value of $232.0 million/$22.781 million normalized 1998
EBITDA = 10.2x, which represents a multiple of current year normalized
EBITDA.
(d) Discount factor calculated using half-year convention.
(e) Terminal value calculated using EBITDA multiple.
(f) Represents total projected debt less cash as of 9/30/98.
(g) Total units include common, subordinated and GP units.
(h) Current market value of common units is 3,832 units * $21.938 unit price =
$84,065
Page 52
DISCOUNTED CASH FLOW ANALYSIS
GAS - PRO FORMA PAINEWEBBER MODEL (a)
($ IN THOUSANDS)
====================================================================================================================
INCOME STATEMENT SUMMARY (b): 1998 1999 2000 2001 2002 Terminal
- ----------------------------- --------- -------- ------- -------- -------- ----------
EBITDA 57,629 78,887 83,412 87,919 92,408
% increase 36.9% 5.7% 5.4% 5.1%
Net income (11,497) 4,970 2,830 3,156 5,021
CASH FLOW SUMMARY:
- ------------------
After-tax EBI 33,584 33,532 34,781 35,995
Depreciation and amortization 44,778 49,354 52,613 55,888
Maintenance capital expenditures (6,774) (6,895) (7,194) (7,316)
Working capital increases (c) 8,982 (1,000) (1,000) (1,000)
-------- -------- ------- -------
Net operating cash flow (free cash flow) 80,570 74,991 79,200 83,567
---------
Weighted average cost of capital (d) 7.9%
---------
---------
Terminal EBITDA multiple (e) 10.2x
---------
Discount factor (f) 0.9629 0.8928 0.8278 0.7675 0.7390
Terminal value (g) $942,562
---------
Present value $970,827 $77,581 $66,952 $65,561 $64,139 $696,595
--------- -------- -------- ------- ------- ---------
Less net debt (h) ($297,334)
---------
Net present value of equity $673,493
=========
Original common units/Total units (i) 26.0%
---------
Equity value to common units (j) $174,793
---------
- --------------------------------------------------------------------------------------------------------------------
(a) Scenario assumes 4.1% steady attrition, 0% margin improvement, and $30
million in acquisitions at 4.75 multiple.
(b) Based on management projections.
(c) A.G Edwards' assumption.
(d) Based on comparable companies' WACC. See Weighted Average Cost of Capital
analysis.
(e) Gas' current firm value of $232.0 million/$22.781 million normalized 1998
EBITDA = 10.2x, which represents a multiple of current year normalized
EBITDA.
(f) Terminal value calculated using half-year convention.
(g) Discount factor calculated using EBITDA multiple.
(h) Represents total proforma projected debt less cash as of 9/30/98.
(i) Total units include common, newly issued common, senior subordinated,
subordinated and GP units.
(j) Current market value of common units is 3,832 units * $21,938 unit
price=$84,065
Page 53
Capital Structure Analysis
Oil
($ in millions)
- ---------------------------------------------------------------------------------------------------------------------------
12/31/97 4/22/98
Book Value Coupon Market Price Market Value
------------ -------- -------------- --------------
Debt:
Credit Agreement
Working Capital facility $3.000 7.75% NA $3.0
Acquisition facility 0.000 7.75% NA 0.0
Notes payable
Notes payable for fuel oil dealer purchases, etc. 16.798 8.0%-10.0% NA 16.8
11.85%, 12.17%, 12.18% Senior Notes 60.000 11.96% NA 60.0
14.1% Subordinated and Senior 8.300 14.10% NA 8.3
10.125% Subordinated 50.000 10.13% 92.13% 46.1
9.375% Subordinated Debentures 75.000 9.38% 87.00% 65.3
12.25% Subordinated Debentures 81.250 12.25% 96.50% 78.4
Total Debt $294.348 $277.8
Effective Cost of Debt 11.0%
Preferred Stock:
Redeemable preferred stock $8.334 14.34% NA 8.3
12.875% Exchangeable preferred stock 30.000 12.88% NA 30.0
Adjustment to balance sheet (1.678) NA (1.7)
Total Preferred Stock $36.7 $36.7
Effective Cost of Preferred Stock 13.2%
Total Debt and Preferred Stock $331.0 $314.5
Effective Cost of Debt and Preferred Stock 11.2%
12/31/97 4/22/98
Shares Out. Market Price Market Value
------------- -------------- --------------
Equity:
Common stock
Class A 23,954,560 $1.625 $38.9
Class B 11,228 17.776 (a) 0.2
Class C 2,597,519 NA (b) 4.2
Total Equity $43.3
Effective Cost of Equity 28.7%
Total Capitalization $357.8
WACC 13.3%
Less: Cash 11.7
Net Capitalization $346.1
Net Market Market Value
% of Ownership Value of Gas of Interest
---------------- -------------- --------------
Less:
Interest in Gas 40.7% $231.959 $94.3
Total Value of Oil Without Interest in Gas $263.5
- -------------------------
(a) Class B market price is calculated as: $17.50+$0.2763.
(b) Market price is assumed to equal that of the Class A
shares, since the Class C shares do not trade.
Page 54
Capital Structure Analysis
Gas
($ in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97 4/22/98
Book Value Coupon Market Price Market Value
---------- ------ --------------- --------------
DEBT:
Credit Agreement
Working Capital facility $ 0.000 None Not applicable Not applicable
Acquisition facility 0.000 None Not applicable Not applicable
Notes payable
8.04% First Mortgage Notes 85.000 8.04% NA $85.0
7.17% First Mortgage Notes (a) 11.000 7.17% NA 11.0
Total Debt $96.0
Effective Cost Of Debt 7.9%
After-tax Cost Of Debt 5.2%
12/31/97 4/22/98
Shares Out. Market Price Market Value
----------- ------------ ------------
EQUITY:
Common units 3,831,727 $21.938 $ 84.1
Subordinated units 2,396,078 NA (b) 52.6
General Partner 2.8 (c)
Total Equity $139.4
Effective cost of equity 9.7%
Total Capitalization $235.4
WACC 7.9%
Less: Cash $ 3.5
Net Capitalization $232.0
- ------------------------------------------------------------------------------------------------------------------------------------
(a) The 7.17% First Mortgage Notes were placed 1/26/98; proceeds were used to
repay the acquisition facility.
(b) Market price assumed to equal common units.
(c) Implied 2% general partner interest.
Page 55
Capital Structure Analysis
Gas - Pro Forma as of 9/30/98
($ In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Pro Forma
Gas Oil Adjustments Gas
------------ ------------ ------------------ -----------
Debt:
8.04% First Mortgage Notes $85,000 $0 $0 $85,000
8.25% WC Revolver 7,457 - - 7,457
7.17% First Mortgage Notes 11,000 - - 11,000
11.96% Senior Notes - 60,000 (60,000) -
14.10% Senior Notes - 3,100 (3,100) -
14.10% Subordinated Notes - 3,100 (3,100) -
10.13% Sub Notes & Sr Notes - 50,000 (50,000) -
9.38% Sub Notes & Sr Notes - 75,000 (75,000) -
12.25% Sub Notes & Sr Notes - 81,250 (81,250) -
8.00% Existing Acq Notes Payable - 13,859 - 13,859
8.46% Exchange Debt - - 66,000 66,000
8.50% New Debt - - 125,000 125,000
------------ ------------ ------------------ -----------
Total Debt $103,457 $286,309 ($81,450) $308,316
Weighted average cost of Debt 8.3%
Preferred Stock:
14.33% Preferred Stock $0 $4,167 ($4,167) $0
12.88% Preferred Stock - 30,000 (30,000) -
------------ ------------ ------------------ -----------
- 34,167 (34,167) -
Common Equity $56,368 $210,015 $123,378 ($30,268)
- ------------------------------------------------------------------------------------------------------------------------------------
Page 56
Discounted Cash Flow Analysis
Pro Forma Weighted Average Cost Of Capital Derivation
($ in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Implied Total Total
Market Unit Total Market Debt/ Debt as % Un-
Levered Val. Debt Price at Units Value of Total Of Total levered
Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta
- ------------------------------------------------------------------------------------------------------------------------------------
AmeriGas Partners, L.P. 0.52 $ 777.8 $ 25.938 41.9 $1,108.6 70.2% 41.2% 0.306
Cornerstone Propane Partners, L.P. 0.41 235.8 22.688 19.7 455.7 51.7% 34.1% 0.270
Ferrellgas Partners, L.P. 0.39 537.2 20.875 31.3 666.6 80.6% 44.6% 0.216
Heritage Propane Partners, L.P. 0.44 176.9 23.125 8.4 197.8 89.4% 47.2% 0.232
National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208
Star Gas Partners, L.P. 0.34 96.0 21.938 6.2 139.4 68.9% 40.8% 0.201
Suburban Propane Partners, L.P. 0.38 428.2 18.813 28.7 551.4 77.6% 43.7% 0.214
Comparable group's average unlevered beta: 0.23
Pro forma debt - to - equity ratio (b): 95.2%
Pro forma debt as a percent of total capital (b): 48.8%
Comparable group's beta relevered for Pro forma capital structure: 0.368
=====
- -----------------------------------------------------------------------------
Pro forma capitalization - at market (b) $308.3 48.8%
Total debt 323.9 51.2%
-------- -------
Common Equity $632.2 100.00%
- -----------------------------------------------------------------------------
DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL :
- -------------------------------------------------
Market Risk Premium Range (d)
-------------------------------------------
11.3% 12.3% 13.3%
-------------------------------------------
Pro forma theoretical levered beta: 0.368
Assumed % of equity in Pro forma capital structure (b): 51.2%
Risk - free rate of return (c): 5.7%
Pro forma cost of equity range (at various market risk premiums): 9.8% 10.2% 10.6%
===== ===== =====
Pro forma assumed tax rate: 35.0%
Assumed % of debt in capital structure (b): 48.8%
Pro forma estimated cost of debt (e): 8.3%
Pro forma estimated after - tax cost of debt: 5.4% 5.4% 5.4% 5.4%
-------------------------------------------
Pro forma weighted average cost of capital range (f): 7.7% 7.9% 8.0%
-------------------------------------------
- -----------------------------------------------------
(a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the
number of weeks available, which may be less than 143) adjusted beta
relative to the S&P 500 index.
(b) Market value of long-term debt is assumed to be equal to the book value.
(c) Ten - year Treasury rate on April 22, 1998.
(d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7%
minus the risk-free rate.
(e) Based on Pro forma current debt structure.
(f) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
Page 57
COMPARISON OF CAPITAL STRUCTURES AND COSTS OF CAPITAL
($ IN MILLIONS)
- ----------------------------------------------------------------------------------------------------------------
AMERIGAS PARTNERS, CORNERSTONE PROPANE FERRELLGAS PARTNERS,
L.P. Partners, L.P. L.P.
------------------ ------------------- --------------------
Capital Cost Capital Cost Capital Cost
------- ------- --------- ------- ------- -------
DEBT:
Working capital/Revolving credit facility $ 28.0 6.44% $ 24.2 7.76% $ 84.6 8.40%
Acquisition facility 37.0 6.32%
Term loan 50.0 8.40%
Senior Notes 100.0 10.13% 220.0 7.53% 200.0 10.00%
160.0 9.38%
First Mortgage Notes
Series A 222.8 10.53%
Series B 211.6 10.07%
Series C 110.0 8.83%
Purchase contract obligations 12.0 7.50%
Notes payable on noncompete agreements 14.6 6.05%
Other, including capital leases 9.4 NA
TOTAL DEBT PER MOST RECENT 10K 718.7 256.2 509.1
TOTAL DEBT 12/31/97 777.8 9.56% 235.8 7.55% 537.2 9.27%
MINORITY INTEREST $ 5.1 $ 0.0 $ 2.0
EQUITY:
TOTAL EQUITY $1,108.6 9.75% $455.7 9.41% $ 666.6 9.93%
TOTAL CAPITALIZATION $1,891.6 8.29% $691.5 7.88% $1,205.8 8.19%
Less: Cash 24.4 19.8 13.5
NET CAPITALIZATION $1,867.2 $671.7 $1,192.3
FINANCIAL RATIOS:
Bank debt/total debt 8.36% 10.26% 25.05%
Total debt/total cap 41.12% 34.10% 44.55%
Common/total units 52.77% 66.48% 46.97%
- ----------------------------------------------------------------------------------------------------------------
HERITAGE PROPANE NATIONAL PROPANE SUBURBAN PROPANE
Partners, L.P. Partners, L.P. Partners, L.P.
------------------- ------------------ --------------------
Capital Cost Capital Cost Capital Cost
-------- ------ -------- ------- --------- -------
DEBT:
Working capital/Revolving credit facility $ 12.3 7.59% $ 8.5 7.95% $ 0.0
Acquisition facility 25.0 7.38% 12.0 7.35% $ 0.0
Term loan
Senior Notes 120.0 8.55% 425.0 7.54%
3.5 8.00%
First Mortgage Notes 125.0 8.54%
Series A
Series B
Series C
Purchase contract obligations
Notes payable on noncompete agreements 3.3 8.00% 1.9 8.00%
Other, including capital leases 1.0
TOTAL DEBT PER MOST RECENT 10K 161.5 147.4 428.5
TOTAL DEBT 12/31/97 176.9 8.23% 147.4 8.40% 428.2 7.54%
MINORITY INTEREST $ 0.0 $ 0.0 $ 0.0
EQUITY:
TOTAL EQUITY $197.8 10.10% $ 232.9 9.62% $551.4 9.88%
TOTAL CAPITALIZATION $374.6 7.86% $ 380.2 8.01% $979.6 7.71%
Less: Cash 2.8 4.6 37.6
NET CAPITALIZATION $371.8 $ 375.6 $942.0
FINANCIAL RATIOS:
Bank debt/total debt 21.06% 13.91% 0.00%
Total debt/total cap 47.21% 38.76% 43.71%
Common/total units 55.82% 59.65% 75.06%
Page 58
AMERIGAS PARTNERS, L.P.
DISCOUNTED CASH FLOW ANALYSIS
WEIGHTED AVERAGE COST OF CAPITAL DERIVATION
($ in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Implied Total Total
Market Unit Total Market Debt/ Debt as % Un-
Levered Val. Debt Price at Units Value of Total of Total Levered
Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta
- ------------------------------------------------------------------------------------------------------------------------------------
AmeriGas Partners, L.P. 0.48 $777.8 $ 25.938 41.9 $1,108.6 70.2% 41.2% 0.282
Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264
Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210
Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227
National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208
Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195
Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203
Comparable group's average unlevered beta: 0.23 ------------------------------------------------------------
AmeriGas' debt-to-equity ratio(b): 70.2%
AmeriGas' debt as a percent of total capital (b): 41.2% AmeriGas' capitalization-at market (b)
Comparable group's beta relevered for Amerigas' Total debt $777.8 41.2%
capital structure: 0.331 Common equity 1,108.6 58.8%
====== -------- ------
$1,886.5 100.0%
------------------------------------------------------------
Derivation Of Weighted Average Cost Of Capital : Market Risk Premium Range (d)
- ------------------------------------------------ --------------------------------------------
AmeriGas' theoretical levered beta: 0.331 11.3% 12.3% 13.3%
Assumed % of equity in Amerigas' capital structure (b): 58.8% --------------------------------------------
Risk-free rate of return (c): 5.7%
AmeriGas' cost of equity range (at various market risk premiums): 9.4% 9.7% 10.1%
AmeriGas' assumed tax rate: 35.0% ===== ===== =====
Assumed % of debt in capital structure (b): 41.2%
AmeriGas' estimated cost of debt (e): 9.6%
AmeriGas' estimated after-tax cost of debt: 6.2% 6.2% 6.2% 6.2%
--------------------------------------------
AmeriGas' weighted average cost of capital range (f): 8.1% 8.3% 8.5%
____________________________________________________________ --------------------------------------------
(a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the
number of weeks available, which may be less than 143) adjusted beta
relative to the S&P 500 index.
(b) Market value of long-term debt is assumed to be equal to the book value.
(c) Ten-year Treasury rate on April 22, 1998.
(d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7%
minus the risk-free rate.
(e) Based on AmeriGas' current debt structure.
(f) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
Page 59
CORNERSTONE PROPANE PARTNERS, L.P.
DISCOUNTED CASH FLOW ANALYSIS
WEIGHTED AVERAGE COST OF CAPITAL DERIVATION
($ IN MILLIONS)
===============================================================================================================================
Total Implied Total Total
Market Unit Total Market Debt/ Debt as %
Levered Val. Debt Price at Units Value of Total of Total Unlevered
Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta
- -------------------------------------------------------------------------------------------------------------------------------
AmeriGas Partners, L.P. 0.48 $777.8 $25.938 41.9 $1,108.6 70.2% 41.2% 0.282
Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264
Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210
Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227
National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208
Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195
Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203
--------------------------------------------------
Cornerstone's capitalization - at market (b)
Comparable group's average unlevered beta: 0.23 Total debt $235.8 34.1%
Cornerstone's debt - to - equity ratio (b): 51.7% Common equity 455.7 65.9%
------ ------
Cornerstone's debt as a percent of total capital (b): 34.1%
Comparable group's beta relevered for Cornerstone's $691.5 100.0%
capital structure: 0.303
===== --------------------------------------------------
DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: Market Risk Premium Range (d)
- ----------------------------------------------- ------------------------------------------
11.3% 12.3% 13.3%
------------------------------------------
Cornerstone's theoretical levered beta: 0.303
Assumed % of equity in Cornerstone's capital structure (b): 65.9%
Risk - free rate of return (c): 5.7%
Cornerstone's cost of equity range (at various market risk premiums): 9.1% 9.4% 9.7%
==== ==== ====
Cornerstone's assumed tax rate: 35.0%
Assumed % of debt in capital structure (b): 34.1%
Cornerstone's estimated cost of debt (e): 7.6%
Cornerstone's estimated after - tax cost of debt: 4.9%
4.9% 4.9% 4.9%
Cornerstone's weighted average cost of capital range (f):
------------------------------------------
7.7% 7.9% 8.1%
------------------------------------------
____________________________
(a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the
number of weeks available, which may be less than 143) adjusted beta
relative to the S&P 500 index.
(b) Market value of long-term debt is assumed to be equal to the book value.
(c) Ten - year Treasury rate on April 22, 1998.
(d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7%
minus the risk-free rate.
(e) Based on Cornerstone's current debt structure.
(f) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
Page 60
Ferrellgas Partners, L.P.
Discounted Cash Flow Analysis
Weighted Average Cost of Capital Derivation
($ in millions)
- --------------------------------------------------------------------------------
Total Implied Total Total
Market Unit Total Market Debt/ Debt as % Un-
Levered Val, Debt Price at Units Value of Total Of Total Levered
Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta
- ----------------------------------------------------------------------------------------------------------------------------------
AmeriGas Partners, L.P. 0.48 $ 777.8 $25.938 41.9 $1,108.6 70.2% 41.2% 0.282
Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264
Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210
Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227
National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208
Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195
Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203
---------------------------------------------
Ferrellgas 'capitalization -
at Market (b)
Comparable group's average unlevered beta: 0.23 Total debt $537.2 44.6%
Ferrellgas' debt - to - equity ratio (b): 80.6% Common equity 666.6 55.4%
Ferrellgas' debt as a percent of total capital (b): 44.6% --------- -------
Comparable group's beta relevered for Ferrell gas' capital structure: 0.346 $1,203.8 100.0%
========= ---------------------------------------------
Derivation Of Weighted Average Cost Of Capital : Market Risk Premium Range (d)
- ------------------------------------------------ --------------------------------------
11.3% 12.3% 13.3%
Ferrellgas' theoretical levered beta: 0.346 --------------------------------------
Assumed % of equity in Ferrell gas' capital structure (b): 55.4%
Risk - free rate of return (c): 5.7%
Ferrellgas' cost of equity range (at various market risk premiums): 9.6% 9.9% 10.3%
Ferrellgas' assumed tax rate: 35.0% ==== ==== =====
Assumed % of debt in capital structure (b): 44.6%
Ferrellgas' estimated cost of debt (e): 9.3%
Ferrellgas' estimated after - tax cost of debt: 6.0% 6.0% 6.0% 6.0%
--------------------------------------
Ferrellgas' weighted average cost of capital range (f): 8.0% 8.2% 8.4%
- ------------------------------------- --------------------------------------
(a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the
number of weeks available, which may be less than 143) adjusted beta
relative to the S&P 500 index.
(b) Market value of long-term debt is assumed to be equal to the book value.
(c) Ten - year Treasury rate on April 22, 1998.
(d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7%
minus the risk-free rate.
(e) Based on Ferrellgas' current debt structure. 61
(f) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
HERITAGE PROPANE PARTNERS, L.P.
DISCOUNTED CASH FLOW ANALYSIS
WEIGHTED AVERAGE COST OF CAPITAL DERIVATION
($ IN MILLIONS)
====================================================================================================================================
TotaL Implied Total Total
Market Unit TotaL Market Debt/ Debt as % Un-
Levered Val. Debt Price at Units Value of Total of Total Levered
Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta
- ------------------------------------------------------------------------------------------------------------------------------------
AmeriGas Partners, L.P. 0.48 $777.8 $25.938 41.9 $1,108.6 70.2% 41.2% 0.282
Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264
Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210
Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227
National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208
Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195
Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203
------------------------------------------------
Heritage's Capitalization - at market (b)
Comparable group's average unlevered beta: 0.23 Total debt $176.9 47.2%
Heritage's debt - to - equity ratio(b): 89.4% Common Equity 197.8 52.8%
------- ------
Heritage's debt as a percent of total capital (b): 47.2% $374.6 100.0%
Comparable group's beta relevered for Heritage's capital structure: 0.359 ------------------------------------------------
=====
DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL : MARKET RISK PREMIUM RANGE (d)
- ------------------------------------------------ ----------------------------------
11.3% 12.3% 13.3%
----------------------------------
Heritage's theoretical levered beta: 0.359
Assumed % of equity in Heritage's capital structure (b): 52.8%
Risk - free rate of return (c): 5.7%
Heritage's cost of equity range (at various market risk premiums): 9.7% 10.1% 10.5%
==== ===== =====
Heritage's assumed tax rate: 35.0%
Assumed % of debt in capital structure (b): 47.2%
Heritage's estimated cost of debt (e): 8.2%
Heritage's estimated after - tax cost of debt: 5.4% 5.4% 5.4% 5.4%
----------------------------------
Heritage's weighted average cost of capital range (f): 7.7% 7.9% 8.0%
----------------------------------
__________________________________________________________
(a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the
number of weeks available, which may be less than 143) adjusted beta
relative to the S&P 500 index.
(b) Market value of long-term debt is assumed to be equal to the book value.
(c) Ten - year Treasury rate on April 22, 1998.
(d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7%
minus the risk-free rate.
(e) Based on Heritage's current debt structure.
(f) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
Page 62
National Propane Partners,L.P.
Discounted Cash Flow Analysis
Weighted Average Cost of Capital Derivation
($ in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Implied Total Total
Market Unit Total Market Debt/ Debt as % Un-
Levered Val.Debt Price at Units Value of Total of Total levered
Comparable Company Beta (a) (Bk = Mkt) (4/22/98) Out. (Mil) Equity Equity Capital Beta
- ------------------------------------------------------------------------------------------------------------------------------------
AmeriGas Partners, L.P. 0.48 $777.8 $ 25.938 41.9 $1,108.6 70.2% 41.2% 0.282
Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264
Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210
Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227
National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208
Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195
Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203
--------------------------------------------------------
National's capitalization - at market (b)
Comparable group's average unlevered beta: 0.23 Total debt $147.4 38.8%
National's debt - to - equity ratio (b): 63.3% Common equity 232.9 61.2
------ -----
National's debt as a percent of total capital (b): 38.8% $380.2 100.0%
--------------------------------------------------------
Comparable group's beta relevered for National's capital structure: 0.320
=====
Derivation of Weighted Average Cost of Capital: Market Risk Premium Range (d)
- ------------------------------------------------ ---------------------------------
11.3% 12.3% 13.3%
---------------------------------
National's theoretical levered beta: 0.320
Assumed % of equity in National's capital structure (b): 61.2%
Risk - free rate of return (c): 5.7%
National's cost of equity range (at various market risk premiums): 9.3% 9.6% 9.9%
=== === ===
National's assumed tax rate: 35.0%
Assumed % of debt in capital structure (b): 38.8%
National's estimated cost of debt (e): 8.4%
National's estimated after - tax cost of debt: 5.5% 5.5% 5.5% 5.5%
---------------------------------
National's weighted average cost of capital range (f): 7.8% 8.0% 8.2%
---------------------------------
______________________________
(a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the
number of weeks available, which may be less than 143) adjusted beta
relative to the S&P 500 index.
(b) Market value of long-term debt is assumed to be equal to the book value.
(c) Ten - year Treasury rate on April 22, 1998.
(d) lbbotson Associates 1997. Total returns for small company stocks of 17.7%
minus the risk-free rate.
(e) Based on National's current debt structure.
(f) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
Page 63
SUBURBAN PROPANE PARTNERS, L.P.
DISCOUNTED CASH FLOW ANALYSIS
WEIGHTED AVERAGE COST OF CAPITAL DERIVATION
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL IMPLIED TOTAL TOTAL
MARKET UNIT TOTAL MARKET DEBT/ DEBT AS % UN-
LEVERED VAL. DEBT PRICE AT UNITS VALUE OF TOTAL OF TOTAL LEVERED
COMPARABLE COMPANY BETA (A) (BK = MKT) (4/22/98) OUT. (IL) EQUITY EQUITY CAPITAL BETA
- ---------------------------------------------------------------------------------------------------------------------------------
AmeriGas Partners, L.P. 0.48 $777.8 $ 25.938 41.9 $1,108.6 70.2% 41.2% 0.282
Cornerstone Propane Partners, L.P. 0.40 235.8 22.688 19.7 455.7 51.7% 34.1% 0.264
Ferrellgas Partners, L.P. 0.38 537.2 20.875 31.3 666.6 80.6% 44.6% 0.210
Heritage Propane Partners, L.P. 0.43 176.9 23.125 8.4 197.8 89.4% 47.2% 0.227
National Propane Partners, L.P. 0.34 147.4 20.313 11.2 232.9 63.3% 38.8% 0.208
Star Gas Partners, L.P. 0.33 96.0 21.938 6.2 139.4 68.9% 40.8% 0.195
Suburban Propane Partners, L.P. 0.36 428.2 18.813 28.7 551.4 77.6% 43.7% 0.203
-------------------------------------------------------
Suburban's capitalization - at market (d)
Comparable group's average unlevered beta: 0.23 Total debt $428.2 43.7%
Suburban's debt - to - equity ratio (b): 77.6% Common equity 551.4 56.3%
------ -----
Suburban's debt as a percent of total capital (b): 43.7% $979.6 100.0%
-------------------------------------------------------
Comparable group's beta relevered for Suburban's capital structure: 0.342
=====
DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL : MARKET RISK PREMIUM RANGE (d)
- ------------------------------------------------ ----------------------------------
11.3% 12.3% 13.3%
----------------------------------
Suburban's theoretical levered beta: 0.342
Assumed % of equity in Suburban's capital structure (b): 56.3%
Risk - free rate of return (c): 5.7%
Suburban's cost of equity range (at various market risk premiums): 9.5% 9.9% 10.2%
==== ==== =====
Suburban's assumed tax rate: 35.0%
Assumed % of debt in capital structure (b): 43.7%
Suburban's estimated cost of debt (e): 7.5%
Suburban's estimated after - tax cost of debt: 4.9% 4.9% 4.9% 4.9%
----------------------------------
Suburban's weighted average cost of capital range (f): 7.5% 7.7% 7.9%
----------------------------------
__________________________________
(a) Source: Bloomberg. 143 week (maximum weekly time period allowed, or the
number of weeks available, which may be less than 143) adjusted beta
relative to the S&P 500 index.
(b) Market value of long-term debt is assumed to be equal to the book value.
(c) Ten - year Treasury rate on April 22, 1998.
(d) Ibbotson Associates 1997. Total returns for small company stocks of 17.7%
minus the risk-free rate.
(e) Based on Suburban's current debt structure.
(f) Calculation based upon use of the Capital Asset Pricing Model (CAPM).
Page 64
PROJECT HEAT
- ------------------------------------------------------------------------------------------------------------------------------------
Transaction Summary and Assumptions
(in thousands except per share and per unit data) Scenario III: Worst Case
EQUITY RESTRUCTURING CALCULATION OF SUB GP UNITS OFFERED
- -------------------------------------------------------------------------- -------------------------------------------------
Petro
-----------------------
Public Insiders
-------- ---------
Securities Offered Sr Sub Sub & GP Value of Sub/GP Units to be
Incentive Rights 76% 24% To be Coverial $18,597
Value Offered $ 3.15 $ 3.15 Less: Value of GP 6,284
-------------
Current Market $ 1.63 $ 1.63 12,313
Premium in Market 93.8% 98.6% Remaider at $16.33 754
Required Yeild w/out PV of Incentive Rights 11.5% 14.0%
Value of Security w/out PV of Incent. Rights $ 19.13 $ 15.71
Assumed Value of Incentive Rights $ 0.61 $ 0.61
Value of Security Offered $ 19.74 $ 16.33 PRESENT VALUE OF INCENTIVE RIGHTS
Security Offered per Share 0.16 0.19 Discount Rate 25%
Total Shares 17,160 9,404 PV of Cash Flows 1997-2005 1,478
Insiders to Receive Sr.Sub 3,500 (3,500) PV of Terminal Value 4x 1,189
-------------
Shares to be Converted 20,660 5,904 Total PV of Incentive Rights 2,667
Units Offered 3,296 754
Current Sub/GP 0 Value of Incentive Rights
Value of GP/Unit $ 21.28 per Ut $ 0.61
DEBT RESTRUCTURING
- ------------------------------------------------------------------------------------------------------------------------------------
Projected
12/31/97
Privates Principal Strategy Price
----------- ---------- -------
11.96% Sr Notes 60,000 Exchange 110.0%
14.10% Sr Notes 3,100 Neg.Tender 110.0%
14.10% Sub Notes 3,100 Neg.Tender 110.0%
14.33% Pfd Stock 4,167 Neg.Tender 105.0%
Publics:
10.13% Sub Notes & Sr Notes 50,000 Neg.Tender 100.0%
9.38% Sub Notes & Sr Notes 75,000 Tender 100.0%
12.25% Sub Notes & Sr Notes 81,250 Tender 105.0%
12.88% Pfd Stock 30,000 Tender 100.0%
FINANCING SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------------
Amount Rate Unit Price
---------- -------- --------------
New Common Raised $145,728 $ 22.13
New Debt Raised 125,000 8.50%
UNITS OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------------------
Current Pro Forma
-------------------- ----------------------
Units % Units %
-------- ------- -------- ---------
Existing Common 3,832 60.3% 3,832 26.0%
New Common 0 0.0% 6,587 44.6%
Common to Petro Shareholders 0 0.0% 0 0.0%
Sr Sub to Petro Shareholders 0 0.0% 3,296 22.3%
Existing Sub 2,396 37.7% 754 5.1%
Implied GP 127 2.0% 295 2.0%
-------- ------- -------- ---------
Total Units 6,355 100.0% 14,764 100.0%
-------- ------- -------- ---------
SUMMARY CASH FLOW AND COVERAGE ANALYSIS
- ------------------------------------------------------------------------------------------------------------------------------------
($ on per Unit data)
Estimated Normalized Projected
----------------------------------------------
1998 1998 1999 2000 2001 2002
-------- --------- -------- --------- --------- ----------
STAR STAND ALONE
EBITDA $18,629 $ 22,781 $26,730 $ 28,541 $ 30,361 $ 32,188
Interest Expense (7,807) (7,807) (9,114) (10,028) (10,748) (11,276)
Maintenance CapEx (2,710) (2,710) (3,274) (3,395) (3,694) (3,816)
Taxes (25) (25) (25) (25) (25) (25)
-------- --------- -------- --------- --------- ----------
Distributable Cash Flow $ 8,087 $ 12,239 $14,317 $ 15,093 $ 15,894 $ 17,071
======== ========= ======== ========= ========= ==========
DCF per common Unit $ 2.11 $ 3.19 $ 3.74 $ 3.94 $ 4.15 $ 4.46
DCF/Common Unit MQD 0.94 x 1.42 x 1.66 x 1.75 x 1.85 x 1.98
DCF per Total Unit $ 1.27 $ 1.93 $ 2.25 $ 2.38 $ 2.50 $ 2.69
DCF/Total MQD 0.58 x 0.88 x 1.02 x 1.08 x 1.14 x 1.22
Indicated Distribution per Common Unit $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20
Star Pro Forma
EBITDA
Star $18,629 $ 22,781 $26,730 $ 28,541 $ 30,361 $ 32,188
Petro 38,500 43,440 51,657 54,371 57,058 59,720
Synergies 500 500 500 500 500 500
-------- --------- -------- --------- --------- ----------
Total 57,629 66,721 78,887 $ 83,412 87,919 92,408
-------- --------- -------- --------- --------- ----------
Interest Expense (27,697) (27,697) (28,649) (30,737) (31,660) (31,009)
Maintenance CapEx (6,210) (6,210) (6,774) (6,895) (7,194) (7,316)
Taxes (525) (525) (525) (525) (525) (525)
-------- --------- -------- --------- --------- ----------
Distributable Cash Flow $23,197 $ 32,289 $42,939 $ 45,255 $ 48,540 $ 53,558
======== ========= ======== ========= ========= ==========
DCF per Common Unit $ 2.23 $ 3.10 $ 4.12 $ 4.34 $ 4.66 $ 5.14
DCF per Total Unit 1.57 2.19 2.91 3.07 3.29 3.63
Indicated Distribution per Common Unit $ 2.20 $ 2.20 $ 2.30 $ 2.40 $ 2.60 $ 2.80
Pro Forma Coverage Ratios
MQD Coverage
Common Unit 0.99 x 1.38 x 1.84 x 1.93 x 2.08 x 2.29 x
Senior Subordinated Unit 0.75 1.05 1.39 1.47 1.58 1.74
Total Unit 0.71 0.99 1.32 1.39 1.49 1.65
Indicated Distribution Coverage
Common Unit 0.99 x 1.38 x 1.76 x 1.77 x 1.76 x 1.80 x
Senior Subordinated Units 0.75 1.05 1.33 1.35 1.33 1.37
Total Unit 0.71 0.99 1.26 1.28 1.26 1.30
Aceration/Dilution
DCF per Unit - Star Stand Alone $ 1.27 $ 1.93 $ 2.25 $ 2.38 $ 2.50 $ 2.69
DCF per Unit - Pro Forma 1.57 2.19 2.91 3.07 3.29 3.63
Pro Forma Credit Analysis
EBITDA Interest 2.08 x 2.41 x 2.75 x 2.71 x 2.78 x 2.98 x
LT Debt/EBITDA 5.22 4.51 4.17 4.32 4.01 3.71
PROJECT
- --------------------------------------------------------------------------------
TRANSACTION SUMMARY AND ASSUMPTIONS
(in thousands except per share and per unit
OPERATING ASSUMPTIONS
- -------------------------------------------------------
Petro Star
-------- ------
Normalized Maintenance CapEx $3,500 $2,710
Maintenance CapEx Life 15 yrs 15 yrs
Growth CapEx Life 15 yrs 15 yrs
Life of Existing Depreciation 15 yrs 15 yrs
Interest Income Rate 3.5% 3.5%
Marginal Tax Percent 30.0% 33.0%
Deferred Tax Percent 0.0%
Minimum Cash Balance $1,000
Initial Incremental Cash Req'd for
Distributions $5,000
Consolidation Savings $500
Annual Bank Fees $692 $94
Current Stock Price $1.63 $22.13
ACQUISITION ASSUMPTIONS
------------------------------------------------------------------
Petro Multiple 1998 1999 2000 2001 2002
----- ---------- ------- ------- ------- ------- -------
Amount 4.75x $15,000 $30,000 $30,000 $30,000 $30,000
Timing End Mid Mid Mid Mid
% EBITDA 0.0% 50.0% 50.0% 50.0% 50.0%
% Attrition 4.1%
Star
Amount 7.00x $20,000 $10,000 $10,000 $10,000 $10,000
Timing End Mid Mid Mid Mid
0.0% 50.0% 50.0% 50.0% 50.0%
% EBITDA
Amount 7.00x $5,000
Timing Reg
% EBITDA 100.0%
NEW SECURITY ASSUMPTIONS
- -------------------------------------------------------------------------------------------------------------------
New MLP Equity New Star Debt Advisory Fees
- -------------------------------------- -------------------------------- -----------------------------------
Gross Proceeds $145,728 Gross Proceeds $125,000 Fairness Opinion $1,000
Common Units to Public 6,587 Gross Spread % 1.0% Financial Advisory $2,500
Gross Spread % 5.0% Gross Spread $ $ 1,250 Debt Tender Fee 0.26% $ 507
Gross Spread $ $ 7,286 Coupon 8.50%
Offering Price/Share $ 22.13
(current market price)
EXCHANGE ASSUMPTIONS
- ------------------------------------------------------------------------------
Gets New Units of:
----------------------------
Shareholders of: Dividend Common 5x Sub Sub
- ---------------------------------------------- -------- --------- -------
Public Class A Shares 17,160 $0.30 - 2,738 -
Insider Class A Shares 6,795 $0.30 - - 754
Insider Class B Shares 11 $0.30 - 2 -
Insider Class C Shares 2,598 $0.30 - 556 -
------- -------- --------- -------
26,563 - 3,296 754
TRANSACTION COSTS SUMMARY SOURCES AND USES OF FUNDS
- ------------------------------------------------------------ ------------------------------------------------------------------
New MLP Equity $ 7,286 Sources $ 2,023 Uses:
New Star Debt 1,250 Excess Cash on Hand 125,000 Repay Debt Principal $212,450
Fairness Opinion 1,000 New Star Debt 145,728 Redeem Preferred 34,167
Financial Advisory 2,500 New MLP Equity 0 Premium on Redemption/
Solicitation Fees on Exchange of Outsider Petro Cash Balance Exchange/Defeasance 4,891
Debt 507
Exchange of 11.96% Notes 300 Transaction Fees 17,743
Prefunding of Liabilities 3,500
Legal Fees 1,000 --------- ---------
$272,751 $272,751
Printing 2,500 ========= =========
Accounting Fees 250
Other:
Environmetal 350
Rating Agencies 100
Roadshow 200
Asset Appraisal 250
Solicitation expenses 100
Other Bank Fees 150
--------
$17,743
========
TRANSACTION SUMMARY AND ASSUMPTION
(in thousands except per share and per unit data) Scenario III: Worst Case
RECAPITALIZATION ASSUMPTIONS
- -----------------------------------------------------------------------------------------------------------------------------
(D)efease
(T)ender
(R)edeem Principal
(E)xchange as of Maturity Period Coupon/ Sinking Fund Payment
------------------- ------------------------
Petro Instruments: (N)othing 9/30/98 m/d yr Dividend Payment Year Start
- ---------------------------- -------------- ------------ --------- -------- ------------ ---------- ------------
11.96% Sr Notes e $ 60,000 v 1-Oct 0 11.960% $ 0 0
14.10% Sr Notes t 3,100 v 15-Jan 2001 14.100% 1,050 1997
14.10% Sub Notes t 3,100 v 15-Jan 2001 14.100% 1,050 1997
10.13% Sub Notes & Sr Notes t 50,000 v 1-Apr 2003 10.110% -
9.38% Sub Notes & Sr Notes t 75,000 v 1-Feb 2006 9.375% -
12.25% Sub Notes & Sr Notes t 81,250 v 1-Feb 2005 12.250% -
8.00% Acq. & Other Notes Payable n 13,859 v 0 8.000% - 0
8.25% Existing Credit Facility n 0 v 1998 8.250% -
0.00% Other Notes n 0 v NA NA 0.000% 0 NA
------------
$286,309
Pfrd Stock:
- -----------
14.33% Pfd Stock t 4,167 v 1-Aug 1999 14.330% 4,167 1997
12.88% Pfd Stock t 30,000 v 15-Feb 2009 12.875% 0
0.00% n 0 0.000%
------------
$ 34,167
------------
Total Petro $320,476
------------
Star Instruments:
- ----------------------------
8.04% 1st Mortgage Notes n 85,000 v NA NA 8.040% - 0
8.25% WC Revolver n 0 NA NA 8.250% - NA
7.50% Acquisition Facility n 0 v NA NA 7.500% - NA
8.50% New Debt n 125,000 v NA NA 8.500% 0 NA
7.17% Pearl Notes n 11,000 NA NA 7.170% 0 NA
------------
$210,000
------------
Total Combined $530,476
============
% Red/ Red/Exchg Defeasance Red/Exchg/Defease Exchanged
-------------------
Petro Instruments: Exchanged Price Price Value Premium Int Rate Security Type
- ---------------------------- ----------- ----------- ---------- --------- --------- ---------- -------------
11.96% Sr Notes 100.0% 110.0% $66,000 $ 0 8.5% Sr Notes
14.10% Sr Notes 100.0% 110.0% 3,410 310 Sr Notes
14.10% Sub Notes 100.0% 110.0% 3,410 310 Sub Notes
10.13% Sub Notes & Sr Notes 100.0% 100.0% 106.2% 50,000 - Sub Notes & Sr Notes
9.38% Sub Notes & Sr Notes 100.0% 100.0% 108.2% 75,000 - Sub Notes & Sr Notes
12.25% Sub Notes & Sr Notes 100.0% 105.0% 116.2% 85,313 4,063 Sub Notes & Sr Notes
8.00% Acq. & Other Notes Payable 0.0% 100.0% - - Acq. & Other Notes Payable
8.25% Existing Credit Facility 0.0% 100.0% - - Existing Credit Facility
0.00% Other Notes 0.0% 0.0% - - 11.0% Other Notes
---------
$ 4,683
Pfrd Stock:
- -----------
14.33% Pfd Stock 100.0% 105.0% 4,375 208 Pfd Stock
12.88% Pfd Stock 100.0% 100.0% 30,000 - Pfd Stock
0.00% - -
---------
$ 208
---------
Total Petro $ 4,891
---------
Star Instruments:
- ----------------------------
8.04% 1st Mortgage Notes 0.0% 0.0% - - 1st Mortgage Notes
8.25% WC Revolver 0.0% 0.0% - - WC Revolver
7.50% Acquisition Facility 0.0% 0.0% - - Acquisition Facility
8.50% New Debt 0.0% 0.0% - - Now Debt
7.17% Pearl Notes 0.0% 0.0% - - Pearl Notes
---------
$ 0
---------
Total Combined $ 4,891
---------
Star Stand Alone Distribution Assumptions
- --------------------------------------------------------------------------------
Marginal Interest In:
------------------------
Distribution Public GP
------------ ------ --------
Minimum Quarterly Distribution $2.20 98% 2%
First Target Distribution $2.42 98% 2%
Second Target Distribution $2.84 85% 15%
Third Target Distribution $3.70 75% 25%
Thereafter NM 50% 50%
Target Distribution Level $2.20
Annual Distribution Increase $0.00
Standard Distribution Structure ("S") ------------
or Target ("T") t
------------
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Marginal Interest In Incentive Rights
------------------------ ------------------------
Distribution Public GP Incen. Rt. GP Sr. Sub.
------------ ------ -------- ---------- ---------- ------------
Minimum Quarterly Distribution $2.20 98% 2% 0% 24% 76%
First Target Distribution $2.42 98% 2% 0% 24% 76%
Second Target Distribution $2.84 85% 2% 13% 24% 76%
Third Target Distribution $3.70 75% 2% 23% 24% 76%
Thereafter NM 50% 2% 48% 24% 76%
1998 1999 2000 2001 2002 Thereafter
------------ ------ -------- ---------- ---------- ------------
Annual Indicated Distribution Increase $0.00 $0.10 $0.10 $0.20 $0.20 $0.05
Target Indicated Distribution Level $2.20 $2.30 $2.40 $2.60 $2.80
Standard Distribution Structure ("S") ------------
or Target ("T") t
------------
- ------------------------------------------------------------------------------------------------------------------------
3 of 18
PROJECT HEAT
================================================================================
PRO FORMA OPENING BALANCE SHEET
(in thousands except per share and per unit data) SCENARIO III: WORST CASE
OPENING BALANCE SHEET STAR GAS PETRO
------------------------------------- -------------------------------------
12/31/97 ADJUSTMENTS 9/30/98 12/31/97 ADJUSTMENTS 9/30/98
---------- ------------- ---------- ---------- ------------- ----------
Assets:
Cash $ 3,452 ($ 2,951) $ 501 $ 2,390 $10,615 $ 13,005
Other Current Assets 18,537 (3,142) 15,395 102,734 (43,030) 59,704
---------- ---------- ---------- ----------
Total Current Assets 21,989 15,895 105,124 72,709
PP&E and Intangibles, Net 108,809 (3,995) 104,814 124,804 - 107,763
Investments in Unconsolidated Affiliates - - - 7,535 (7,122) 413
Other Assets 48,653 (2,115) 46,338 10,385 (19) 10,364
---------- ---------- ---------- ----------
Total Assets 179,451 167,248 247,846 191,269
========== ========== ========== ==========
Liabilities:
Current Liabilities 11,514 (4,143) 7,371 92,688 - 70,110
8.25% Existing Credit Facility - 7,457 7,457 21,500 (21,500) -
Long Term Debt 96,000 - 96,000 278,378 7,931 286,309
Total Preferred Stock - - - 34,167 - 34,167
Other Liabilities 54 (3) 51 10,745 (47) 10,698
---------- ---------- ---------- ----------
Total Liabilities 107,568 110,879 437,478 401,284
Common Shareholder's/Partner's Equity 71,883 (15,515) 56,368 (189,632) (20,383) (210,015)
---------- ---------- ---------- ----------
Total Liabilities and Equity $179,451 $167,248 $247,846 $191,269
========== ========== ========== ==========
check - - -
PRO FORMA
MERGER STAR GAS
ADJUSTMENTS 9/30/98
----------- -----------
ASSETS:
Cash ($ 2,023) $ 10,982
Other Current Assets - 75,099
----------- -----------
Total Current Assets (2,023) 86,081
PP&E and Intangibles, Net - 212,597
Investments in Unconsolidated Affiliates (413) -
Other Assets - 56,902
----------- -----------
Total Assets (2,436) 355,580
LIABILITIES:
Current Liabilities - 77,481
8.25% Existing Credit Facility - 7,437
Long Term Debt (81,450) 300,859
Total Preferred Stock (34,167) -
Other Liabilities (10,698) 51
----------- -----------
Total Liabilities (126,315) 385,848
Common Shareholder's/Partner's Equity 123,378 (30,268)
----------- -----------
Total Liabilities and Equity ($ 2,937) $355,580
===========
check - -
PRO FORMA CAPITAL STRUCTURE STAR GAS PETRO
------------------------------------- -------------------------------------
12/31/97 ADJUSTMENTS 9/30/98 12/31/97 ADJUSTMENTS 9/30/98
---------- ------------- ---------- ---------- ------------- ----------
Debt:
8.04% 1st Mortgage Notes $ 85,000 $ 85,000 $ 0 $ 0 $ 0
8.25% WC Revolver - 7,437 7,457 - - -
7.50% Acquisition Facility - - - - -
7.17% Pearl Notes 11,000 11,000 - - -
11.96% Sr Notes - - 60,000 - 60,000
14.10% Sr Notes - - 4,150 (1,050) 3,100
14.10% Sub Notes - - 4,150 (1,050) 3,100
10.13% Sub Notes & Sr Notes - - 50,000 - 50,000
9.38% Sub Notes & Sr Notes - - 75,000 - 75,000
12.25% Sub Notes & Sr Notes - - 81,250 - 81,250
0.00% Other Notes - - 0 - 0
8.00% Arg. & Other Notes Payable - - 16,798 (2,939) 13,859
8.25% Existing Credit Facility - - 0 - 0
8.46% Exchanged Debt - - - - -
8.50% New Debt - - - - -
---------- ---------- ---------- ----------
Total Debt 96,000 103,457 291,348 286,309
---------- ---------- ---------- ----------
Preferred Stock:
14.33% Pfd Stock - - 4,167 - 4,167
12.88% Pfd Stock - - 30,000 - 30,000
---------- ---------- ---------- ----------
Total Preferred - - 34,167 34,167
---------- ---------- ---------- ----------
Common Shareholder's/Partner's Equity 71,883 56,368 (189,632) (20,383) (210,015)
---------- ---------- ---------- ----------
Total Capital $167,883 $159,825 $135,883 $110,461
========== ========== ========== ==========
PRO FORMA
MERGER STAR GAS
ADJUSTMENTS 9/30/98
----------- -----------
Debt:
8.04% 1st Mortgage Notes $ 0 $ 85,000
8.25% WC Revolver - 7,457
7.50% Acquisition Facility - -
7.17% Pearl Notes - 11,000
11.96% Sr Notes (60,000) -
14.10% Sr Notes (3,100) -
14.10% Sub Notes (3,100) -
10.13% Sub Notes & Sr Notes (50,000) -
9.38% Sub Notes & Sr Notes (75,000) -
12.25% Sub Notes & Sr Notes (81,250) -
0.00% Other Notes - -
8.00% Arg. & Other Notes Payable - 13,859
8.25% Existing Credit Facility - -
8.46% Exchanged Debt 66,000 66,000
8.50% New Debt 125,000 125,000
Total Debt (81,450) 308,316 (123,543.00)
-----------
Preferred Stock:
14.33% Pfd Stock (4,167) -
12.88% Pfd Stock (30,000) -
----------- -----------
Total Preferred (34,167) -
-----------
Common Shareholder's/Partner's Equity 123,378 (30,268)
-----------
Total Capital $278,048
===========
4 of 18
PROJECT HEAT
====================================================================================================================================
(In thousands except per share and per unit data)
SCENARIO III: WORST CASE
STAR GAS STAND ALONE INCOME STATEMENT
Estimated Normalized Projected
----------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
--------- -------- --------- --------- --------- --------- --------- -------- ---------
EBITDA $18,629 $22,781 $26,730 $28,541 $30,361 $32,188 $34,125 $36,178 $38,356
Depreciation and Amortization 11,629 11,629 12,768 15,111 16,137 17,178 18,229 19,291 20,364
--------- -------- --------- --------- --------- -------- -------- ------- -------
EBIT 7,000 11,152 13,962 13,430 14,224 15,010 15,896 16,887 17,992
Interest Expense (7,807) (7,807) (9,114) (10,028) (10,748) (11,276) (9,858) (10,217) (10,452)
Interest Income 18 18 35 35 35 35 35 35 35
Other Income - - - - - - - - -
--------- -------- --------- --------- --------- -------- -------- ------- -------
Income Before Taxes (789) 3,363 4,883 3,437 3,511 3,769 6,073 6,705 7,575
Current Income Taxes (25) (25) (25) (25) (25) (25) (25) (25) (25)
Deferred Income Taxes - - - - - - - - -
--------- ------- --------- --------- --------- -------- -------- -------- -------
Net Income Available To Common ($814) $3,338 $4,858 $3,412 $3,486 $3,744 $6,048 $6,680 $7,550
========== ======= ========= ========= ======== ======== ======== ======= =======
STAR GAS STAND ALONE UNITS OUTSTANDING
Common Units
Beginning Balance 3,832 3,832 3,832 4,317 4,317 4,517 4,717 4,717 4,717
Issuance 0 0 485 0 200 200 0 0 0
Buyback 0 0 0 0 0 0 0 0 0
---------- ------- --------- --------- -------- -------- -------- -------- -------
Ending Balance 3,832 3,832 4,317 4,317 4,517 4,717 4,717 4,717 4,717
---------- ------- --------- --------- -------- -------- -------- -------- -------
Subordinated Units
Beginning Balance 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396
Issuance 0 0 0 0 0 0 0 0 0
Buyback 0 0 0 0 0 0 0 0 0
---------- ------- --------- --------- -------- -------- -------- ------- -------
Ending Balance 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396
---------- ------- --------- --------- -------- -------- -------- ------- -------
GP Implied Units
Beginning Balance 127 127 127 127 127 127 127 127 127
Issuance 0 0 0 0 0 0 0 0 0
Buyback 0 0 0 0 0 0 0 0 0
---------- ------- --------- --------- -------- -------- -------- ------- -------
Ending Balance 127 127 127 127 127 127 127 127 127
---------- ------- --------- --------- -------- -------- -------- ------- -------
Total Units 6,355 6,355 6,840 6,840 7,040 7,240 7,240 7,240 7,240
========== ======= ========= ========= ======== ======== ======== ======= =======
5 of 18
PROJECT HEAT
================================================================================
(in thousands except per share and per unit data)
Scenario III: Worst Case Estimated Projected
---------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------ ------ ------
STAR GAS STAND ALONE BALANCE SHEET
Assets:
Cash $ 501 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Other Current Assets 15,395 18,600 19,317 20,037 20,760 21,526 22,339 23,200
-------- -------- -------- -------- -------- -------- -------- --------
Total Current Assets 15,895 19,600 20,317 21,037 21,760 22,526 23,339 24,200
PP&E and Intangibles, Net 104,814 112,117 112,225 111,632 110,148 107,768 104,484 100,291
Other Assets 46,538 46,538 46,538 46,538 46,538 46,538 46,538 46,538
-------- -------- -------- -------- -------- -------- -------- --------
Total Assets 167,248 178,255 179,080 179,207 178,446 176,832 174,361 171,029
======== ======== ======== ======== ======== ======== ======== ========
Liabilities:
Current Liabilities 7,371 10,576 11,293 12,013 12,736 13,502 14,315 15,176
Total Debt 103,457 109,651 120,328 125,805 130,133 135,685 139,702 141,910
Other Liabilities 51 51 51 51 51 51 51 51
-------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities 110,879 120,279 131,672 137,869 102,920 149,239 154,068 157,167
Partner's Equity 56,368 57,976 47,407 41,338 35,526 27,593 20,293 13,862
-------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities and Equity $167,248 $178,255 $179,080 $179,207 $178,446 $176,832 $174,361 $171,029
======== ======== ======== ======== ======== ======== ======== ========
Check - - - - - - - -
STAR GAS STAND ALONE CASH FLOW STATEMENT
Net Income $ 4,858 $ 3,412 $ 3,486 $ 3,744 $ 6,048 $ 6,680 $ 7,550
Depreciation and Amortization 12,768 15,111 16,137 17,178 18,229 19,291 20,364
Deferred Taxes - - - - - - -
Other Income - - - - - - -
Other Asset/Liabilities - - - - - - -
Change in Working Capital (0) - (0) (0) 0 (0) (0)
-------- -------- -------- -------- -------- -------- --------
Cash from Operations 17,626 18,523 19,623 20,922 24,277 25,971 27,914
-------- -------- -------- -------- -------- -------- --------
Maintenance CapEx (3,274) (3,395) (3,694) (3,816) (3,942) (4,072) (4,206)
Internal Growth CapEx (1,797) (1,824) (1,850) (1,878) (1,906) (1,935) (1,965)
External Growth CapEx (15,000) (10,000) (10,000) (10,000) (10,000) (10,000) (10,000)
-------- -------- -------- -------- -------- -------- --------
Cash from Investments (20,071) (15,219) (15,544) (15,694) (15,848) (16,007) (16,171)
-------- -------- -------- -------- -------- -------- --------
Acquisition Borrowing 16,797 11,824 11,850 11,878 11,906 11,935 11,965
Remaining Distributions to Repay Debt (336) (1,112) (1,913) (3,090) (6,319) (7,884) (9,692)
Amortization of Mortgage Notes - - - - - - -
Borrowing to Repay Existing Debt - - - - - - -
Borrowing for Changes in WC 0 - 0 0 (0) 0 0
Borrowing to Pay Full MQD - - - - - - -
Change in Equity 10,731 - 4,425 4,425 - - -
Distributions (13,981) (13,981) (13,981) (13,981) (13,981) (13,981) (13,981)
-------- -------- -------- -------- -------- -------- --------
Cash from Financing 13,211 (3,269) 381 (768) (8,393) (9,929) (11,708)
-------- -------- -------- -------- -------- -------- --------
Net Cash Flow 10,766 35 4,460 4,460 35 35 35
Initial Cash Balance 501 1,000 1,000 1,000 1,000 1,000 1,000
-------- -------- -------- -------- -------- -------- --------
Cash Available for Paydown of WC Revolver and Acq. Facility 11,266 1,035 5,460 5,460 1,035 1,035 1,035
Minimum Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Borrowing/(Paydown) on WC Revolver and Acq. Facility (10,266) (35) (4,460) (4,460) (35) (35) (35)
-------- -------- -------- -------- -------- -------- --------
Net Change in Cash 499 - - - - - -
-------- -------- -------- -------- -------- -------- --------
Ending Cash Balance $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
======== ======== ======== ======== ======== ======== ========
6 of 18
PROJECT HEAT
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands except per share and per unit data)
Scenario III: Worst Case
Estimated Normalized Projected
-------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----
Star Gas Stand Alone EBITDA Calculation
(see Tab 3; cases)
- ------------------------------------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
EBITDA Growth Rate 22.3% 1.7% 1.7% 1.7% 1.7% 1.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Base EBITDA: Timing
End 1998
Mid 1999
Mid 2000
Mid 2001
Mid 2002
Mid 2003
Mid 2004
Mid 2005
------- ------- ------- ------- ------- ------- ---------
Total EBITDA $18,629 $22,781 $26,730 $28,541 $30,361 $32,188 $34,125
======= ======= ======= ======= ======= ======= =========
Star Gas Stand Alone Depreciation Calculation
Existing Depreciation $11,629 $11,629 $11,629 $11,629 $11,629 $11,629 $ 11,629
Maintenance CapEx: 1998 2,710 $0 $0 $ 181 $ 181 $ 181 $ 181 $ 181
Annual Growth: 3.3% 1999 3,274 109 218 218 218 218
2000 3,395 113 226 226 226
2001 3,694 123 246 246
2002 3,816 127 254
2003 3,942 131
2004 4,072
2005 4,206
Internal Growth CapEx: 1998 1,841 - - 123 123 123 123 123
Annual Growth: 1.5% 1999 1,797 60 120 120 120 120
2000 1,824 61 122 122 122
2001 1,850 63 123 123
2002 1,878 63 125
2003 1,906 64
2004 1,935
2005 1,965
External Growth CapEx: 1998 20,000 - - - 1,333 1,333 1,333 1,333
Annual Growth 0.0% 1999 15,000 667 1,000 1,000 1,000 1,000
2000 10,000 333 667 667 667
2001 10,000 333 667 667
2002 10,000 333 667
2003 10,000 333
2004 10,000
2005 10,000
------- ------- ------- ------- ------- ------- --------
Total Depreciation $11,629 $11,629 $12,768 $15,111 $16,137 $17,178 $ 18,229
======= ======= ======= ======= ======= ======= ========
PROJECT HEAT
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands except per share and per unit data)
Scenario III: Worst Case
Estimated Normalized Projected
---------------------------------------------------------
2004 2005
-------- --------
Star Gas Stand Alone EBITDA Calculation
(see Tab 3; cases)
- ------------------------------------------------------------------------------------------------------------------------------------
EBITDA Growth Rate Year 7 Year 8
1.7% 1.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Base EBITDA: Timing
End 1998
Mid 1999
Mid 2000
Mid 2001
Mid 2002
Mid 2003
Mid 2004
Mid 2005 -------- --------
$36,178 $38,356
======== ========
Total EBITDA
Star Gas Stand Alone Depreciation Calculation
Building Depreciation $11,629 $11,629
Maintenance CapEx: 1998 2,710 $ 181 $ 181
Annual Growth: 3.3% 1999 3,274 218 218
2000 3,395 226 226
2001 3,694 246 246
2002 3,816 254 254
2003 3,942 263 263
2004 4,072 136 271
2005 4,206 140
Internal Growth CapEx: 1998 1,841 123 123
Annual Growth: 1.5% 1999 1,797 120 120
2000 1,824 122 122
2001 1,850 123 123
2002 1,878 125 125
2003 1,906 127 127
2004 1,935 65 129
2005 1,965 65
`
External Growth CapEx: 1998 20,000 1,333 1,333
Annual Growth 0.0% 1999 15,000 1,000 1,000
2000 10,000 667 667
2001 10,000 667 667
2002 10,000 667 667
2003 10,000 667 667
2004 10,000 333 667
2005 10,000 333
------- -------
Total Depreciation $19,291 $20,364
======== =======
7 of 18
Project Heat
- -----------------------------------------------------------------------------------------------------------------------------------
Star Gas Stand Alone Debt Schedule
(In thousands except per share and per unit share) Scenario III: Worst Case
Estimated Normalized Projected
-----------------------------------------
1998 1998 1999 2000 2001 2002
-------- ------- ------- ------ ------ ------
8.04% 1st Mortgage Notes
Beginning Balance $85,000 $85,000 $85,000 $85,000 $85,000 $85,000
Borrowing 0 0 0 0 0 0
Amortization 0 0 0 0 0 0
--------- --------- ---------- --------- ---------- ----------
Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000
Interest Payment 8.04% 6,834 6,134 6,834 6,834 6,834 6,834
Make-Whole Payment 0 0 0 0 0 0
7.17% Pearl Notes
Beginning Balance $0 $0 $11,000 $11,000 $11,000 $11,000
Borrowing 11,000 11,000 0 0 0 0
Amortization 0 0 0 0 0 0
--------- --------- ---------- --------- ---------- ----------
Ending Balance 11,000 11,000 11,000 11,000 11,000 11.000
Interest Payment 7.17% 613 613 789 789 789 789
% of year Pearl Notes Outstanding 77.7% 77.7% 0 0 0 0
8.25% WC Revolver
Beginning Balance - - $7,457 $7,457 $7,457 $7,457
Borrowing for Change in WC - - 0 0 0 0
Borrowing to Pay Full MQD 5,894 1,742 - - - -
Borrowing/(Payment) 1,563 5,715 0 0 0 0
--------- --------- ---------- --------- ---------- ----------
Ending Balance 7,457 7,457 7,457 7,457 7,457 7,457
Effective Avg WC Balance 3,729 3,729 3,729 3,729 3,729 3,729
Interest Payment 8.25% 308 308 308 308 308 308
7.50% Acquisition Facility
Beginning Balance - - $0 $ 6,194 $16,871 $22,348
External Acquisitions 20,000 20,000 10,000 10,000 10,000 10,000
External Acquisitions at Beginning of 1999 - - 5,000 - - -
Internal Acquisitions 1,841 1,841 1,797 1,824 1,850 1,878
Borrowings to Repay Existing Debt - - - - - -
Payment - - (10,266) (35) (4,460) (4,460)
Remaining Distributions to Repay Debt - - (336) (1,112) (1,913) (3,090)
--------- --------- ---------- --------- ---------- ----------
Ending Balance 0 0 6,194 16,871 22,348 26,676
Interest Payment 7.50% 69 69 420 865 1,471 1,838
Total Debt
Beginning Balance $85,000 $85,000 $103,457 $109,651 $120,328 $125,805
Amortization of Mortgage Notes - - - - - -
Borrowing for Pearl Notes 11,000 11,000 - - - -
Borrowing for Changes in WC - - 0 - 0 0
Borrowing to Pay Full MQD 5,894 1,742 - - - -
Acquisition Borrowing 21,841 21,841 16,797 11,824 11,850 11,878
Borrowing to Repay Existing Debt - - - - - -
Remaining Distributions to Repay Debt - - (336) (1,112) (1,913) (3,090)
Borrowing/(Payment) on WC Revolver and
Acq. Facility 1,563 5,715 (10,266) (35) (4,460) (4,460)
--------- --------- ---------- --------- ---------- ----------
Ending Balance $125,298 $125,298 $109,651 $120,328 $125,805 $130,133
========= ========= ========== ========= ========== ==========
Interest Expense
Interest Expense $7,824 $7,824 $8,350 $8,795 $9,401 $9,769
Bank Fee 94 94 94 94 94 94
--------- ------ -- ------ - --------- ------- ---------
Total Interest Payment $7,807 $7,807 $9,114 $10,028 $10,748 $11,276
======== ======== ======== ========== ========= ==========
2003 2004 2005
---------- ---------- ----------
8.04% 1st Mortgage Notes
Beginning Balance $85,000 $85,000 $85,000
Borrowing 0 0 0
Amortization 0 0 0
--------- --------- ----------
Ending Balance 85,000 85,000 85,000
Interest Payment 6,834 6,834 6,834
Make-Whole Payment 0 0 0
7.17% Pearl Notes
Beginning Balance $11,000 $11,000 $11,000
Borrowing 0 0 0
Amortization 0 0 0
--------- --------- ----------
Ending Balance 11,000 11,000 11,000
Interest Payment 789 789 789
% of year Pearl Notes Outstanding 0 0 0
8.25% WC Revolver
Beginning Balance $7,457 $7,457 $7,457
Borrowing for Change in WC (0) 0 0
Borrowing to Pay Full MQD - - -
Borrowing(Payment) 0 0 0
--------- --------- ----------
Ending Balance 7,457 7,457 7,457
Effective Avg WC Balance 3,729 3,729 3,729
Interest Payment 308 308 308
7.50% Acquisition Facility
Beginning Balance $26,676 $32,228 $36,245
External Acquisitions 10,000 10,000 10,000
External Acquisitions at Beginning of 1999 - - -
Internal Acquisitions 1,906 1,935 1,965
Borrowings to Repay Existing Debt - - -
Payment (35) (35) (35)
Remaining Distributions to Repay Debt (6,319) (7,884) (9,692)
--------- --------- ----------
Ending Balance 32,228 36,245 38,483
Interest Payment 1,834 2,193 2,427
Total Debt
Beginning Balance $130,133 $135,685 $139,702
Amortization of Mortgage Notes
- - -
Borrowing for Pearl Notes - - -
Borrowing for Changes in WC (0) 0 0
Borrowing to Pay Full MQD - - -
Acquisition Borrowing 11,906 11,935 11,965
Borrowing to Repay Existing Debt - - -
Remaining Distributions to Repay Debt (6,319) (7,884) (9,692)
Borrowing/(Payment) on WC Revolver and
Acq. Facility (35) (35) (35)
--------- --------- ----------
Ending Balance $135,685 $139,702 $141,940
========= ========= ==========
Interest Expense
Interest Expense $9,764 $10,123 $10,358
Bank Fee 94 94 94
--------- --------- ----------
Total Interest Payment $9,858 $10,217 $10,452
========= ========= ==========
PAINEWEBBER INCORPORATED For discussion purposes only
8 of 18
PROJECT HEAT
====================================================================================================================================
STAR GAS STAND ALONE SCHEDULE OF ACTUAL DISTRIBUTIONS Scenario III: Worst Case
(in thousands except per share and per unit data)
Estimated Normalized Projected
---------------------------------------------------
ASSUMES REVISED TARGET DISTRIBUTION STRUCTURE 1998 1998 1999 2000 2001 2002 2003
---------- ---------- ---------- --------- ---------- --------- ----------
Distributable Cash
- ------------------
Cash from Operations $10,815 $14,967 $17,626 $18,523 $19,623 $20,922 $24,277
Maintenance CapEx (2,710) (2,710) (3,274) (3,395) (3,694) (3,816) (3,942)
Other (18) (18) (35) (35) (35) (35) (35)
---------- ----------- --------- --------- --------- --------- ----------
Total MLP Distributable Cash Flow 8,087 12,239 14,317 15,093 15,894 17,071 20,300
Distributable Cash Flow/Unit $ 1.27 $ 1.93 $ 2.25 $ 2.38 $ 2.50 $ 2.69 $ 3.19
Structure
- ---------
Common Unit Ending Balance 3,832 3,832 3,832 3,832 3,832 3,832 3,832
Subordinated Units 2,396 2,396 2,396 2,396 2,396 2,396 2,396
General Partner Interest Unit Equivalent 127 127 127 127 127 127 127
---------- ----------- --------- --------- --------- --------- ----------
Total Units Outstanding 6,355 6,355 6,355 6,355 6,355 6,355 6,355
Distribution Levels
- -------------------
MQD $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20
First Target $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42
Second Target $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84
Third Target $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70
Indicated Cash Distribution $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20
Distribution of MQD
- -------------------
Cash Available 8,087 12,239 14,317 15,093 15,394 17,071 20,300
Cash Borrowed to Pay Full MQD 5,894 1,742 0 0 0 0 0
Allocation to:
Common Units 8,430 8,430 8,430 8,430 8,430 8,430 8,430
Subordinated Units 5,271 5,271 5,271 5,271 5,271 5,271 5,271
General Partner Interest 280 280 280 280 280 280 280
First Target Distribution
- -------------------------
Cash Available 0 0 336 1,112 1,913 3,090 6,319
Cash Required for Target Distribution 0 0 1,398 1,398 1,398 1,398 1,398
Cash Required for Indicated Distribution 0 0 0 0 0 0 0
Actual Cash Distributed 0 0 0 0 0 0 0
Allocation to:
Common Units 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0
Second Target Distribution
- --------------------------
Cash Available 0 0 0 0 0 0 0
Cash Required for Target Distribution 0 0 0 0 0 0 0
Cash Required for Indicated Distribution 0 0 0 0 0 0 0
Actual Cash Distributed 0 0 0 0 0 0 0
Allocation to:
Common Units 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0
Incentive Distribution 0 0 0 0 0 0 0
Third Target Distribution
- -------------------------
Cash Available 0 0 0 0 0 0 0
Cash Required for Target Distribution 0 0 0 0 0 0 0
Cash Required for Indicated Distribution 0 0 0 0 0 0 0
Actual Cash Distributed 0 0 0 0 0 0 0
Allocation to:
Common Units 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0
Incentive Distribution
Projected
------------------------------
Assumes Revised Target Distribution Structure 2004 2005
------------ --------------
Distributable Cash
- ------------------
Cash from Operations $25,971 $27,914
Maintenance CapEx (4,072) (4,206)
Other (35) (35)
---------- -----------
Total MLP Distributable Cash Flow 21,864 23,673
Distributable Cash Flow/Unit $3.44 $ 3.73
Structure
- ---------
Common Unit Ending Balance 3,832 3,832
Subordinated Units 2,396 2,396
General Partner Interest limit Equivalent 127 127
---------- -----------
Total Units Outstanding 6,355 6,355
Distribution Levels
- -------------------
MQD $ 2.20 $ 2.20
First Target $ 2.42 $ 2.42
Second Target $ 2.84 $ 2.84
Third Target $ 3.70 $ 3.70
Indicated Cash Distribution $ 2.20 $ 2.20
Distribution of MQD
- -------------------
Cash Available 21,864 23,673
Cash Borrowed to Pay Full MQD 0 0
Allocation to:
Common Units 8,430 8,430
Subordinated Units 5,271 5,271
General Partner Interest 280 280
First Target Distribution
- -------------------------
Cash Available 7,884 9,692
Cash Required for Target Distribution 1,398 1,398
Cash Required for Indicated Distribution 0 0
Actual Cash Distributed 0 0
Allocation to:
Common Units 0 0
Subordinated Units 0 0
General Partner Interest 0 0
Second Target Distribution
- --------------------------
Cash Available 0 0
Cash Required for Target Distribution 0 0
Cash Required for Indicated Distribution 0 0
Actual Cash Distributed 0 0
Allocation to:
Common Units 0 0
Subordinated Units 0 0
General Partner Interest 0 0
Incentive Distribution 0 0
Third Target Distribution
- -------------------------
Cash Available 0 0
Cash Required for Target Distribution 0 0
Cash Required for Indicated Distribution 0 0
Actual Cash Distributed 0 0
Allocation to:
Common Units 0 0
Subordinated Units 0 0
General Partner Interest 0 0
Incentive Distribution 0 0
PROJECT HEAT
====================================================================================================================================
STAR GAS STAND ALONE SCHEDULE OF ACTUAL DISTRIBUTIONS (CONT'D) SCENARIO III: WORST CASE
(in thousands except per share and per unit data)
ESTIMATED NORMALIZED PROJECTED
--------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
--------- ---------- -------- -------- -------- -------- -------- -------- --------
Remaining Distribution
- ----------------------
Cash Available 0 0 0 0 0 0 0 0 0
Allocation to:
Common Units 0 0 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0 0 0
Incentive Distribution 0 0 0 0 0 0 0 0 0
Repay Indebtedness 0 0 336 1,112 1,913 3,090 6,319 7,884 9,692
Total Distributions
- -------------------
Common Units 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430
Subordinated Units 5,271 5,271 5,271 5,271 5,271 5,271 5,271 5,271 5,271
General Partner Interest 280 280 280 280 280 280 280 280 280
Incentive Distributions 0 0 0 0 0 0 0 0 0
--------- ---------- -------- -------- -------- -------- -------- -------- --------
Total Distributions $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981
========= ========== ======== ======== ======== ======== ======== ======== ========
Total Distributions Per Unit
- ----------------------------
Common Unit $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20
Subordinated Unit 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20
GP Unit 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20
10 of 18
PROJECT HEAT
- -----------------------------------------------------------------------------
(in thousands except per share and per unit data) Scenario III: Worst Case
Projected
Estimated Normalized ______________________________________________________________
1998 1998 1999 2000 2001 2002 2003 2004 2005
-----------------------------------------------------------------------------------
Petro EBITDA Calculation
- ---------------------------------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
EBITDA Growth Rate (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)%
- ---------------------------------------------------------------------------------------------------------------------------------
Base EBITDA: Timing
Acquisitions: End 1998 $15,000
Mid 1999 30,000
Mid 2000 30,000
Mid 2001 30,000
Mid 2002 30,000
Mid 2003 30,000
Mid 2004 30,000
Mid 2005 30,000
------- -------- -------- ------- ------- ------- ------- ------- -------
Total EBITDA $38,500 $43.440 $51,657 $54,371 $57,058 $59,720 $62,506 $65,422 $68,475
======= ======== ======== ======= ======= ======= ======= ======= =======
Petro Depreciation Calculation
Existing Depreciation $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660
Maintenance CapEx: 1998 $3,500 - - 233 233 233 233 233 233 233
Annual Growth:0.0% 1999 3,500 117 233 233 233 233 233 233
2000 3,500 117 233 233 233 233 233
2001 3,500 117 233 233 233 233
2002 3,500 117 233 233 233
2003 3,500 117 233 233
2004 3,500 117 233
2005 3,500 117
Internal Growth CapEx: 1998 $0 - - - - - - - - -
Annual Growth: 0.0% 1999 0 - - - - - - -
2000 0 - - - - - -
2001 0 - - - - -
2002 0 - - - -
2003 0 - - -
2004 0 - -
2005 0 -
External Growth CapEx: 1998 $15,000 - - 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Annual Growth: 0.0% 1999 30,000 1,000 2,000 2,000 2,000 2,000 2,000 2,000
2000 30,000 1,000 2,000 2,000 2,000 2,000 2,000
2001 30,000 1,000 2,000 2,000 2,000 2,000
2002 30,000 1,000 2,000 2,000 2,000
2003 30,000 1,000 2,000 2,000
2004 30,000 1,000 2,000
2005 30,000 1,000
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Depreciation $29,660 $29,660 $32,010 $34,243 $36,477 $38,710 $40,943 $43,177 $45,410
======= ======= ======= ======= ======= ======= ======= ======= =======
PaineWebber Incorporated 11 of 18 For Discussion Purposes Only
Project Heat
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Scenario III: Worst Case
Star Pro Forma Income Statement
Projected
Estimated Normalized ----------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
--------- ---------- ------- ------- ------- ------- -------- -------- --------
Combined EBITDA $57,129 $66,221 $78,387 $82,912 $87,419 $91,908 $96,631 $101,601 $106,830
Consolidated Savings 500 500 500 500 500 500 500 500 500
------- ------- ------- ------- ------- ------- -------- -------- --------
Pro Forma EBITDA 57,629 66,721 78,887 83,412 87,919 92,408 97,131 102,101 107,330
Depreciation and Amortization 41,289 41,289 44,778 49,354 52,613 55,888 59,173 62,468 65,774
------- ------- ------- ------- ------- ------- -------- -------- --------
EBIT 16,340 25,432 34,109 34,058 35,306 36,520 37,959 39,633 41,556
Interest Expense (27,697) (27,697) (28,649) (30,737) (31,660) (31,009) (30,126) (28,881) -
Interest Income 384 384 35 35 35 35 35 35 35
Other Income - - - - - - - - -
EBT (10,972) (1,880) 5,495 3,355 3,681 5,546 7,867 10,787 41,591
------- ------- ------- ------- ------- ------- -------- -------- --------
Current Income Tax (525) (525) (525) (525) (525) (525) (525) 525) (525)
Deferred Income Taxes - - - - - - - - -
------- ------- ------- ------- ------- ------- -------- -------- --------
Net Income Available to Common ($11,497) ($ 2,405) $ 4,970 $ 2,830 $ 3,156 $ 5,021 $ 7,342 $ 10,262 $ 41,066
======= ======= ======= ======= ======= ======= ======== ======== ========
Star Pro Forma Units Outstanding
Common Units
Beginning Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418
Issuance - - - - - - - -
Buyback - - - - - - - -
------- ------- ------- ------- ------- -------- -------- --------
Ending Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418
SR Subordinated Units
Beginning Balance - 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296
Issuance - - - - - - - -
Buyback - - - - - - - -
------- ------- ------- ------- ------- -------- -------- --------
Ending Balance 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296
Subordinated Units
Beginning Balance 754 754 754 754 754 754 754 754
Issuance - - - - - - - -
Buyback - - - - - - - -
------- ------- ------- ------- ------- -------- -------- --------
Ending Balance 754 754 754 754 754 754 754 754 754
GP Implied Units
Beginning Balance 295 295 295 295 295 295 295 295
Issuance - - - - - - - -
Buyback - - - - - - - -
------- ------- ------- ------- ------- -------- -------- --------
Ending Balance 295 295 295 295 295 295 295 295 295
------- ------- ------- ------- ------- ------- -------- -------- --------
Total 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764
======= ======= ======= ======= ======= ======= ======== ======== ========
PaineWebber Incorporated 12 of 18 For Discussion Purposes Only
Project Heat
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Star Pro Forma Balance Sheet Scenario III: Worst Case
Projected
Estimated --------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004 2005
-------- -------- -------- -------- -------- -------- -------- --------
Assets:
Cash $ 10,982 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Other Current Assets 75,099 103,680 109,763 115,823 121,858 128,209 134,890 141,921
-------- -------- -------- -------- -------- -------- -------- --------
Total Current Assets 86,081 104,680 110,763 116,823 122,858 129,209 135,890 142,921
PP&E and Intangibles, Net 212,597 221,390 220,754 217,185 210,491 200,667 187,707 171,604
Other Assets 56,902 56,902 56,902 56,902 56,902 56,902 56,902 56,902
-------- -------- -------- -------- -------- -------- -------- --------
Total Assets 355,580 382,972 388,420 390,910 390,252 386,778 380,499 371,427
======== ======== ======== ======== ======== ======== ======== ========
Liabilities:
Current Liabilities 77,481 106,062 112,146 118,205 124,240 130,591 137,272 144,303
8.25% Existing Credit Facility 7,457 7,457 7,457 47,422 87,387 127,352 167,317 207,282
Total LT Debt 300,859 328,657 360,624 352,726 343,243 329,181 310,029 257,894
Other Liabilities 51 51 51 51 51 51 51 51
-------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities 385,848 442,227 480,278 518,405 554,922 587,175 614,669 609,530
Preferred Stock - - - - - - - -
Common Shareholder's Equity (30,268) (59,255) (91,858) (127,494) (164,669) (200,397) (234,170) (238,103)
-------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities and Equity $355,580 $382,972 $388,420 $390,910 $390,252 $386,778 $380,499 $371,427
======== ======== ======== ======== ======== ======== ======== ========
Check - - - (0) 0 (0) 0 (0)
Star Pro Forma Cash Flow Statement
Net Income $ 4,970 $ 2,830 $ 3,156 $ 5,021 $ 7,342 $ 10,262 $ 41,066
Depreciation and Amortization 44,778 49,354 52,613 55,888 59,173 62,468 65,774
Deferred Taxes - - - - - - -
Other Assets/Liabilities - - - - - - -
Change in Non-Cash Working Capital - - - - - 0 -
-------- -------- -------- -------- -------- -------- --------
Cash from Operations 49,748 52,185 55,769 60,909 66,515 72,730 106,840
Maintenance CapEx (6,774) (6,895) (7,194) (7,316) (7,442) (7,572) (7,706)
Internal Growth CapEx (1,797) (1,824) (1,850) (1,878) (1,906) (1,935) (1,965)
External Growth CapEx (45,000) (40,000) (40,000) (40,000) (40,000) (40,000) (40,000)
-------- -------- -------- -------- -------- -------- --------
Cash from Investments (53,571) (48,719) (49,044) (49,194) (49,348) (49,507) (49,671)
Acquisition Borrowing 46,797 46,824 1,850 1,878 1,906 1,935 1,965
Remaining Distributions to Repay Debt (8,982) (9,822) (9,748) (11,362) (15,968) (21,088) (54,099)
Amortization of Existing Debt (5,478) (8,141) (60) (60) (120) - -
Borrowing to Repay Existing Debt 5,478 8,141 60 60 120 - -
Borrowing for Changes in WC - - - - - (0) -
Change in Common Equity - - - - - - -
Distributions (33,957) (35,433) (38,792) (42,196) (43,070) (44,035) (44,999)
-------- -------- -------- -------- -------- -------- --------
Cash from Financing 3,858 1,569 (46,690) (51,680) (57,132) (63,188) (97,134)
Net Cash Flow 35 5,035 (39,965) (39,965) (39,965) (39,965) (39,965)
Initial Cash Balance 10,982 1,000 1,000 1,000 1,000 1,000 1,000
-------- -------- -------- -------- -------- -------- --------
Cash Available for Paydown on
WC Revolver and Acq. Facility 11,017 6,035 (38,965) (38,965) (38,965) (38,965) (38,965)
Minimum Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Borrowing/(Paydown) on
WC Revolver and Acq. Facility (10,017) (5,035) 39,965 39,965 39,965 39,965 39,965
-------- -------- -------- -------- -------- -------- --------
Ending Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Net Change in Cash ($9,982) $0 ($0) $0 ($0) $0 ($0)
======== ======== ======== ======== ======== ======== ========
13 of 18
Project Heat
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Star Pro Forma Income Statement
Projected
Estimated Normalized -----------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
--------- ---------- ------- ------- ------- ------- ------- -------- ---------
Scenario III: Worst Case
8.04% 1st Mortgage Notes
Beginning Balance $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000
Borrowing - - - - - - - - -
Amortization - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- -------- --------
Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000
Interest Payment 8.04% 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834
7.17% Pearl Notes
Beginning Balance 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000
Borrowing - - - - - - - - -
Amortization - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- -------- --------
Ending Balance 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000
Interest Payment 7.17% 789 789 789 789 789 789 789 789 789
0.00% Other Notes
Beginning Balance - - - - - - - - -
Borrowing - - - - - - - - -
Amortization - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- -------- --------
Ending Balance - - - - - - - - -
Interest Payment 0.00% - - - - - - - - -
8.50% New Debt
Beginning Balance 125,000 125,000 125,000 130,478 138,619 138,679 138,739 138,859 138,859
Borrowing - - 5,478 8,141 60 120 120 - -
Amortization - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- -------- --------
Ending Balance 125,000 125,000 130,478 138,619 138,679 138,739 138,859 138,859 138,859
Interest Payment 8.50% 10,625 10,625 10,858 11,437 11,785 11.790 11,798 11,803 11,803
Exchange of 8.46%
Senior Notes
Beginning Balance - - 66,000 66,000 66,000 66,000 66,000 66,000 66,000
Borrowing 66,000 66,000 - - - - - - -
Amortization - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- -------- --------
Ending Balance 66,000 66,000 66,000 66,000 66,000 66,000 66,000 66,000 66,000
Interest Payment 8.46% 5,584 5,584 5,584 5,584 5,584 5,584 5,584 5,584 5,584
8.00% Acq. & Other
Notes Payable
Beginning Balance 16,798 16,798 13,859 8,381 240 180 120 - -
Borrowing - - - - - - - - -
Amortization (2,939) (2,939) (5,478) (8,141) (60) (60) (120) - -
------- ------- ------- ------- ------- ------- ------- -------- --------
Ending Balance 13,859 13,859 8,381 240 180 120 - - -
Interest Payment 8.00% 1,226 1,226 890 345 17 12 5 - -
8.25% WC Revolver
Beginning Balance - - 7,457 7,457 7,457 47,422 87,387 127,352 167,317
Borrowing for Change in WC - - - - - - - (0) -
Borrowing/(Payment) - - - - 39,965 39,965 39,965 39,965 39,965
------- ------- ------- ------- ------- ------- ------- -------- --------
Ending Balance - 7,457 7,457 7,457 47,422 87,387 127,352 167,317 207,282
Effective Avg WC Balance 23,600 23,600 21,500 21,500 21,500 21,500 21,500 21,500 21,500
Interest Payment 8.25% 1,947 1,947 1,774 1,774 1,774 1,774 1,774 1,774 1,774
7.50% Acquisition Facility
Beginning Balance - - - 27,798 59,765 51,867 42,384 28,322 9,170
External Acquisitions 40,000 45,000 - -
External Acquisitions at
Beginning of 1999 - - 5,000 - - - - - -
Internal Acquisitions - - 1,797 1,824 1,850 1,878 1,906 1,935 1,965
Payment - - (10,017) (5,035) - - - - -
Remaining Distributions
to Repay Debt - - (8,982) (9,822) (9,748) (11,362) (15,968) (21,088) (54,099)
------- ------- ------- ------- ------- ------- ------- -------- --------
Ending Balance - - 27,798 59,765 51,867 42,384 28,322 9,170 (42,965)
Interest Payment 7.50% $0 $0 $1,230 $3,284 $4,186 $3,534 $2,651 $1,406 ($1,267)
14 of 18
PROJECT HEAT
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands except per share and per unit data) Scenario III Worst Case
Estimated Normalized Projected
----------------------------------
STAR PRO FORMA DEBT SCHEDULE (CONT'D) 199? 1998 1999 2000 2001
--------- ---------- --------- ---------- -----------
TOTAL PRO FORMA DEBT
Beginning Balance $237,798 $237,798 $308,316 $336,114 $368,081
Amortization of Existing Debt (2,939) (2,939) (5,478) (8,141) (60)
Borrowing for Changes in WC - - - - -
Acquisition Borrowing - - 46,797 46,824 1,850
Borrowing to Repay Existing Debt - - 5,478 8,141 60
Remaining Distributions to Repay Debt - - (8,982) (9,822) (9,748)
Borrowings/(Payment) on WC Revolver and Acq. Facility - - (10,017) (5,035) 39,965
--------- ---------- --------- ---------- -----------
Ending Balance 234,859 234,859 336,114 368,081 400,148
Interest Expense 27,005 27,005 27,957 30,045 30,968
Chase Fees 692 692 692 692 692
--------- ---------- --------- ---------- -----------
Total Interest Payment 27,697 27,697 28,649 30,737 31,660
========= ========== ========= ========== ===========
----------------------------------------------
STAR PRO FORMA DEBT SCHEDULE (CONT'D) 2002 2003 2004 2005
--------- ---------- --------- ----------
TOTAL PRO FORMA DEBT
Beginning Balance $400,148 $430,630 $456,533 $477,346
Amortization of Existing Debt (60) (120) - -
Borrowing for Changes in WC - - (O) -
Acquisition Borrowing 1,878 1,906 1,935 1,965
Borrowing to Repay Existing Debt 60 120 - -
Remaining Distributions to Repay Debt (11,362) (15,968) (21,088) (54,099)
Borrowing/(Payment) on WC Revolver and Acq. Facility 39,965 39,965 39,965 39,965
--------- ---------- --------- ----------
Ending Balance 430,630 456,533 477,346 465,176
Interest Expense 30,317 29,434 28,189 25,516
C???? Fees 692 692 692 692
--------- ---------- --------- ----------
Total Interest Payment 31,009 30,126 28,881 $ 26,208
========= ========== ========= ==========
15 of 18
Project Heat
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Scenario III: Worst Case
Star Pro Forma Distribution Schedule of Actual Distributions
Estimated Normalized Projected
----------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
--------- ---------- ------- ------- ------- ------- -------- -------- --------
Distributable Cash
- ------------------
Cash from Operations
(excl chg in WC) $29,792 $38,884 $49,748 $52,185 $55,769 $60,909 $66,515 $72,730 $106,840
Maintenance CapEx (6,210) (6,210) (6,774) (6,895) (7,194) (7,316) (7,442) (7,572) (7,706)
Other (384) (384) (35) (35) (35) (35) (35) (35) (35)
-------- ------- ------- ------- ------- ------- -------- -------- --------
Total MLP Distributable
Cash Flow 23,197 32,289 42,939 45,255 48,540 53,558 59,038 65,123 99,099
Distributable Cash Flow / Unit $1.57 $2.19 $2.91 $3.07 $3.29 $3.63 $4.00 $4.41 $6.71
Structure
- ---------
Common Unit Ending Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418
SR Subordinated Units 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296
Subordinated Units 754 754 754 754 754 754 754 754 754
General Partner Interest Unit
Equivalent 295 295 295 295 295 295 295 295 295
-------- ------- ------- ------- ------- ------- -------- -------- --------
Total Units Outstanding 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764
Distribution Levels $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20
- -------------------
MQD $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20
First Target $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42
Second Target $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84
Third Target $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70
Indicated Cash Distribution $2.20 $2.20 $2.30 $2.40 $2.60 $2.80 $2.85 $2.90 $2.95
Distribution of MQD
- -------------------
Cash Available 23,197 32,289 42,939 45,255 48,540 53,558 59,038 65,123 99,099
Allocation to:
Common Units 22,733 22,920 22,920 22,920 22,920 22,920 22,920 22,920 22,920
SR Subordinated Units 0 7,251 7,251 7,251 7,251 7,251 7,251 7,251 7,251
Subordinated Units 0 1,472 1,659 1,659 1,659 1,659 1,659 1,659 1,659
General Partner Interest 464 646 650 650 650 650 650 650 650
First Target Distribution
- -------------------------
Cash Available 0 0 10,458 12,775 16,060 21,078 26,558 32,643 66,619
Cash Required for
Target Distribution 0 0 3,248 3,248 3,248 3,248 3,248 3,248 3,248
Cash Required for
Indicated Distribution 0 0 1,476 2,953 5,905 8,858 9,596 10,335 11,073
Actual Cash Distributed 0 0 1,476 2,953 3,248 3,248 3,248 3,248 3,248
Allocation to:
Common Units 0 0 1,042 2,084 2,292 2,292 2,292 2,292 2,292
SR Subordinated Units 0 0 330 659 725 725 725 725 725
Subordinated Units 0 0 75 151 166 166 166 166 166
General Partner Interest 0 0 30 59 65 65 65 65 65
Total Distributions to:
Common Units 0 0 1,042 2,084 2,292 2,292 2,292 2,292 2,292
SR Subordinated Units 0 0 330 659 725 725 725 725 725
Subordinated Units 0 0 75 151 166 166 166 166 166
General Partner Interest 0 0 30 59 65 65 65 65 65
PaineWebber Incorporated 16 of 18 For Discussion Purposes Only
Project Heat
================================================================================
(In thousands except per share and per unit data)
Star Gas Pro Forma Schedule of Actual Distributions (cont'd) Scenario III: Worst Case
Projected
Estimated Normalized ------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
--------- ---------- ------ ------ ------ ------ ------ ------ ------
Second Target Distribution
- --------------------------
Cash Available 0 0 0 0 12,812 17,830 23,310 29,395 63,370
Cash Required for Target Distribution 0 0 0 0 7,149 7,149 7,149 7,149 7,149
Cash Required for Indicated Distribution 0 0 0 0 3,064 6,468 7,319 8,170 9,022
Actual Cash Distributed 0 0 0 0 3,064 6,468 7,149 7,149 7,149
Allocation to:
Common Units 0 0 0 0 1,875 3,959 4,376 4,376 4,376
Sr. Subordinated Units 0 0 0 0 593 1,252 1,384 1,384 1,384
Subordinated Units 0 0 0 0 136 287 317 317 317
General Partner Interest 0 0 0 0 61 129 143 143 143
Incentive Right 0 0 0 0 398 841 929 929 929
Incentive Right to GP Interest 0 0 0 0 96 203 224 224 224
Incentive Right to Sr. Sub Units 0 0 0 0 302 638 705 705 705
Total Distributions to:
Common Units 0 0 0 0 1,875 3,959 4,376 4,376 4,376
Sr. Subordinated Units 0 0 0 0 895 1,890 2,089 2,089 2,089
Subordinated Units 0 0 0 0 136 287 317 317 317
General Partner Interest 0 0 0 0 157 332 367 367 367
Third Target Distribution
- -------------------------
Cash Available 0 0 0 0 0 0 16,161 22,245 56,221
Cash Required for Target Distribution 0 0 0 0 0 0 16,591 16,591 16,591
Cash Required for Indicated Distribution 0 0 0 0 0 0 193 1,157 2,122
Actual Cash Distribution 0 0 0 0 0 0 193 1,157 2,122
Allocation to:
Common Units 0 0 0 0 0 0 104 625 1,146
Sr. Subordinated Units 0 0 0 0 0 0 33 198 363
Subordinated Units 0 0 0 0 0 0 8 45 83
General Partner Interest 0 0 0 0 0 0 4 23 42
Incentive Right 0 0 0 0 0 0 44 266 488
Incentive Right to GP Interest 0 0 0 0 0 0 11 64 118
Incentive Right to Sr. Sub Units 0 0 0 0 0 0 34 202 370
Total Distribution to:
Common Units 0 0 0 0 0 0 104 625 1,146
Sr. Subordinated Units 0 0 0 0 0 0 67 400 733
Subordinated Units 0 0 0 0 0 0 8 45 83
General Partner Interest 0 0 0 0 0 0 15 87 160
Remaining Distribution
- ----------------------
Cash Available 0 0 0 0 0 0 0 0 0
Cash Required for Indicated Distribution 0 0 0 0 0 0 0 0 0
Actual Cash Distributed 0 0 0 0 0 0 0 0 0
Allocation to:
Common Units 0 0 0 0 0 0 0 0 0
Sr. Subordinated Units 0 0 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0 0 0
Incentive Right 0 0 0 0 0 0 0 0 0
Incentive Right to GP Interest 0 0 0 0 0 0 0 0 0
Incentive Right to Sr.Sub Units 0 0 0 0 0 0 0 0 0
Repay Indebtedness 0 0 8,982 9,822 9,748 11,362 15,968 21,088 54,099
Total Distributions to:
Common Units 0 0 0 0 0 0 0 0 0
Sr. Subordinated Units 0 0 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0 0 0
17 of 18
PROJECT HEAT
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands except per share and per unit data)
STAR GAS PRO FORMA SCHEDULE OF ACTUAL DISTRIBUTIONS (CONT'D) Scenario III: Worst Case
Estimated Normalized Projected
--------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003
--------- ---------- --------- --------- ---------- ---------- ----------
Total Distributions
- -------------------
Common Units $ 22,733 $ 22,920 $ 23,962 $ 25,004 $ 27,088 $ 29,171 $ 29,692
S R Subordinated Units 0 7,251 7,581 7,910 8,872 9,867 10,132
Subordinated Units 0 1,472 1,734 1,810 1,961 2,112 2,149
General Partner Interest 464 646 679 709 872 1,047 1,097
-------- -------- -------- -------- -------- -------- ----------
Total Distributions $ 23,197 $ 32,289 $ 33,957 $ 35,433 $ 38,792 $ 42,196 $ 43,070
======== ======== ======== ======== ======== ======== ==========
Total Distributions Per Unit
- ----------------------------
Common Units $ 2.18 $ 2.20 $ 2.30 $ 2.40 $ 2.60 $ 2.80 $ 2.85
S R Subordinated Units 0.00 2.20 2.30 2.40 2.69 2.99 3.07
Subordinated & GP Units 0.44 2.02 2.30 2.40 2.70 3.01 3.09
Total Incentive Distributions NPV
------------
To GP Interest $ 357 $ 0 $ 0 $ 0 $ 0 $ 96 $ 203 $ 235
To Sr. Sub Units 1,121 - - - - 302 638 739
------------- -------- -------- -------- -------- -------- -------- ----------
Sub-Total 1,478 - - - - 398 841 974
Present Value of - - - - - - -
Terminal Value 1,189
-------------
Total $2,667
----------------------
2004 2005
--------- ----------
Total Distributions
- -------------------
Common Units $ 30,213 $ 30,734
S R Subordinated Units 10,465 10,798
Subordinated Units 2,187 2,225
General Partner Interest 1,169 1,242
-------- --------
Total Distributions $ 44,035 $ 44,999
======== ========
Total Distributions Per Unit
- ----------------------------
Common Units $ 2.90 $ 2.95
S R Subordinated Units 3.18 3.28
Subordinated & GP Units 3.20 3.30
Total Incentive Distributions
To GP Interest $ 289 $ 342
To Sr. Sub Units 907 1,075
-------- --------
Sub-Total 1,196 1,417
Present Value of
Terminal Value - 5,670
Total
18 of 18
Project Heat
- --------------------------------------------------------------------------------
Transaction Summary and Assumptions
(In thousands except per share and per unit data) Scenario I: Base Case
EQUITY RESTRUCTURING CALCULATION OF SUB/GP UNITS OFFERED
- ---------------------------------------------------------------------------- --------------------------------------------
Petro
-------------------------
Public Insiders
---------- ------------
Securities Offered Sr Sub Sub & GP Value of Sub/GP Units to be
Incentive Rights 76% 24% To Be Converted $18,597
Value Offered $3.15 $3.15 Less: Value of GP 6,284
---------------------
Current Market $1.63 $1.63 12,313
Premium to Market 93.8% 93.8% Remainder at $16.33 754
Required Yield w/out PV of Incent. Rights 11.5% 14.0%
Value of Security w/out PV of Incent. Rights $19.13 $15.71
Assumed Value of Incentive Rights $0.61 $0.61
Value of Security Offered $19.74 $16.33 PRESENT VALUE OF INCENTIVE RIGHTS
Security Offered per Share 0.16 0.19 Discount Rate 25%
Total Shares 17,160 9,404 PV of Cash Flows 1997-2005 1,478
Insiders to Receive Sr. Sub. 3,500 (3,500) PV of Terminal Value 4x 1,189
--------------------
Shares to Be Converted 20,660 5,904 Total PV of Incentive Rights 2,667
Units Offered 3,296 754
Current Sub/GP 0 Value of Incentive Rights per Unit $0.61
Value of GP/Unit $21.28
DEBT RESTRUCTURING
- ---------------------------------------------------------------------------------------------------------
Projected
12/31/97
Privates: Principal Strategy Price
------------- ----------- ---------
11.96% Sr Notes 60,000 Exchange 110.0%
14.10% Sr Notes 3,100 Neg. Tender 110.0%
14.10% Sub Notes 3,100 Neg. Tender 110.0%
14.33% Pfd Stock 4,167 Neg. Tender 105.0%
Publics:
10.13% Sub Notes & Sr Notes 50,000 Neg. Tender 100.0%
9.38% Sub Notes & Sr Notes 75,000 Tender 100.0%
12.25% Sub Notes & Sr Notes 81,250 Tender 105.0%
12.88% Pfd Stock 30,000 Tender 100.0%
FINANCING SUMMARY
- ---------------------------------------------------------------------------------------------------------
Amount Rate Unit Price
------------- ----------- ----------
New Common Raised $145,728 $22.13
New Debt Raised 125,000 8.50%
UNITS OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
Current Pro Forma
----------------------------- -----------------------------
Privates: Units % Units %
------------- ----------- ------------- -----------
Existing Common 3,832 60.3% 3,832 26.0%
New Common 0 0.0% 6,587 44.6%
Common to Petro Shareholders 0 0.0% 0 0.0%
Sr Sub to Petro Shareholders 0 0.0% 3,296 22.3%
Existing Sub 2,396 37.7% 754 5.1%
Implied GP 127 2.0% 295 2.0%
------------- ----------- ------------- -----------
Total Units 6,355 100.0% 14,764 100.0%
============= =========== ============= ===========
SUMMARY CASH FLOW AND COVERAGE ANALYSIS
- ----------------------------------------------------------------------------------------------------
($ on per Unit basis)
Estimated Normalized Projected
---------------------------------------------------
1998 1998 1999 2000 2001 2002
----------- ---------- ---------- ---------- ---------- ----------
Star Stand Alone
EBITDA $18,629 $22,781 $26,730 $28,541 $30,361 $32,188
Interest Expense (7,807) (7,807) (9,114) (10,028) (10,748) (11,276)
Maintenance CapEx (2,710) (2,710) (3,274) (3,395) (3,694) (3,816)
Taxes (25) (25) (25) (25) (25) (25)
----------- ---------- ---------- ---------- ---------- ----------
Distributable Cash Flow $8,087 $12,239 $14,317 $15,093 $15,894 $17,071
=========== ========== ========== ========== ========== ==========
DCF per Common Unit $2.11 $3.19 $3.74 $3.94 $4.15 $4.46
DCF / Common unit MQD 0.94 x 1.42 x 1.66 x 1.75 x 1.85 x 1.98 x
DCF per Total Unit $1.27 $1.93 $2.25 $2.38 $2.50 $2.69
DCF / Total MQD 0.58 x 0.88 x 1.02 x 1.08 x 1.14 x 1.22 x
Indicated Distribution
per Common Unit $2.20 $2.20 $2.20 $2.20 $2.20 $2.20
Star Pro Forma
EBITDA
Star $18,629 $22,781 $26,730 $28,541 $30,361 $32,188
Petro 38,500 43,440 55,798 62,665 69,509 76,324
Synergies 500 500 500 500 500 500
----------- ---------- ---------- ---------- ---------- ----------
Total 57,629 66,721 83,028 91,706 100,370 109,012
----------- ---------- ---------- ---------- ---------- ----------
Interest Expense (27,697) (27,697) (28,488) (30,079) (30,142) (28,240)
Maintenance CapEx (6,210) (6,210) (6,774) (6,895) (7,194) (7,316)
Taxes (525) (525) (525) (525) (525) (525)
----------- ---------- ---------- ---------- ---------- ----------
Distributable Cash Flow $23,197 $32,289 $47,241 $54,207 $62,509 $72,931
=========== ========== ========== ========== ========== ==========
DCF per Common Unit $2.23 $3.10 $4.53 $5.20 $6.00 $7.00
DCF per Total Unit 1.57 2.19 3.20 3.67 4.23 4.94
Indicated Distribution
per Common Unit $2.20 $2.20 $2.30 $2.40 $2.60 $2.80
Pro Forma Coverage Ratios
MQD Coverage
------------
Common Unit 0.99 x 1.38 x 2.02 x 2.32 x 2.67 x 3.12 x
Senior Subordinated Unit 0.75 1.05 1.53 1.76 2.03 2.37
Total Unit 0.71 0.99 1.45 1.67 1.92 2.25
Indicated Distribution Coverage
-------------------------------
Common Unit 0.99 x 1.38 x 1.93 x 2.12 x 2.26 x 2.45 x
Senior Subordinated Unit 0.75 1.05 1.47 1.61 1.72 1.86
Total Unit 0.71 0.99 1.39 1.53 1.63 1.76
Accretion/Dilution
DCF per Unit - Star Stand Alone $1.27 $1.93 $2.25 $2.38 $2.50 $2.69
DCF per Unit - Pro Forma 1.57 2.19 3.20 3.67 4.23 4.94
Pro Forma Credit Analysis
EBITDA/Interest 2.08 x 2.41 x 2.91 x 3.05 x 3.33 x 3.86 x
LT Debt/EBITDA 5.22 4.51 3.91 3.79 3.24 2.72
PaineWebber Incorporated 1 of 18 For Discussion Purposes Only
PROJECT HEAT
- -----------------------------------------------------------------------------------------------------------------------------------
Transaction Summary and Assumptions
(in thousands except per share and per unit data) Scenario I: Base Case
OPERATING ASSUMPTIONS ACQUISITION ASSUMPTIONS
- ---------------------------------------------------- ------------------------------------------------------------------
Petro Star
------- ------ Petro Multiple 1998 1999 2000 2001 2002
Normalized Maintenance CapEx $3,500 $2,710 ----- -------- ---- ---- ---- ---- ----
Maintenance CapEx Life 15 yrs 15 yrs Amount 4.75x $15,000 $30,000 $30,000 $30,000 $30,000
Growth CapEx Life 15 yrs 15 yrs Timing End Mid Mid Mid Mid
Life of Existing Depreciation 15 yrs 15 yrs %EBITDA 0.0% 50.0% 50.0% 50.0% 50.0%
Interest Income Rate 3.5% 3.5% %Attrition 4.1%
Marginal Tax Rate 33.0% 33.0% Star
Deferred Tax Percent 0.0% ----
Minimum Cash Balance $1,000 Amount 7.00x $20,000 $10,000 $10,000 $10,000 $10,000
Initial Incremental Cash Timing End Mid Mid Mid Mid
Req'd for Distributions $5,000 %EBITDA 0.0% 50.0% 50.0% 50.0% 50.0%
Consolidation Savings $500
Annual Bank Fees $692 $94 Amount 7.00x $5,000
Current Stock Price $1.63 $22.13 Timing Beg
%EBITDA 100.0%
NEW SECURITY ASSUMPTIONS
- --------------------------------------------------------------------------------------------------------------------------
New MLP Equity New Star Debt Advisory Fees
- ------------------------------------------ ------------------------------ -------------------------------------
Gross Proceeds $145,728 Gross Proceeds $125,000 Fairness Opinion $1,000
Common Units to Public 6,587 Gross Spread % 1.0% Financial Advisory $2,500
Gross Spread % 5.0% Gross Spread $ $1,250 Debt Tender Fee 0.26% $507
Gross Spread $ $7,286 Coupon 8.50%
Offering Price/Share $22.13
(current market price)
EXCHANGE ASSUMPTIONS
- ------------------------------------------------------------------------------------------------
Gets New Units of:
--------------------------------------
Shareholders of: Dividend Common Sr Sub Sub
- -------------------------------------------------- ---------- ----------- -----------
Public Class A Shares 17,160 $0.30 - 2,738 -
Insider Class A Shares 6,795 $0.30 - - 754
Insider Class B Shares 11 $0.30 - 2 -
Insider Class C Shares 2,598 $0.30 - 556 -
-------- -------- ---------- ----------- -----------
26,563 - 3,296 754
TRANSACTION COSTS SUMMARY SOURCES AND USES OF FUNDS
- ---------------------------------------------------- -------------------------------------------------------------------------
New MLP Equity $7,286 Sources: Uses:
New Star Debt 1,250 Excess Cash on Hand $2,023 Repay Debt Principal $212,450
Fairness Opinion 1,000 New Star Debt 125,000 Redeem Preferred 34,167
Financial Advisory 2,500 New MLP Equity 145,728 Premium on Redemption/
Solicitation Fees on Exchange
of Outsider Petro Debt 507 Cash Balance 0 Exchange/Defeasance 4,891
Exchange of 11.96% Notes 300 Transaction Fees 17,743
Legal Fees 2,500 Prefunding of Liabilities 3,500
Printing 1,000 -------- --------
Accounting Fees 250 $272,751 $272,751
Other: ======== ========
Environmental 350
Rating Agencies 100
Roadshow 200
Asset Appraisal 250
Solicitation expenses 100
Other Bank Fees 150
--------
$17,743
========
PaineWebber Incorporated 2 of 18
- --------------------------------------------------------------------------------
TRANSACTION SUMMARY AND ASSUMPTIONS
(In thousands except per share and per unit data)
Scenario I: Base Case
RECAPITALIZATION ASSUMPTIONS
- ------------------------------------------------------------------------------------------------------------------------
(D)efease
(T)ender
(R)edeem Principal Maturity Period Sinking Fund Payment
(E)xchange as of ------------------ Coupon/ ----------------------------
Petro Instruments: (N)othing 9/30/98 m/d yr Dividend Payment Year Start
- -------------------------- ----------- ----------- -------- -------- ---------- ----------- --------------
11.96% Sr Notes e $ 60,000 v 1-Oct 0 11.960% $0 0
14.10% Sr Notes t 3,100 v 15-Jan 2001 14.100% 1,050 1997
14.10% Sub Notes t 3,100 v 15-Jan 2001 14.100% 1,050 1997
10.13% Sub Notes & Sr Notes t 50,000 v 1-Apr 2003 10.130% -
9.38% Sub Notes & Sr Notes t 75,000 v 1-Feb 2006 9.375% -
12.25% Sub Notes & Sr Notes t 81,250 v 1-Feb 2005 12.250% -
8.00% Acq. & Other Notes
Payable n 13,859 v 0 8.000% - 0
8.25% Existing Credit Facility n 0 v 1998 8.250% -
0.00% Other Notes n 0 v NA NA 0.000% 0 NA
-----------
$286,309
Pfrd. Stock:
- --------------------------
14.33% Pfd Stock t 4,167 v 1-Aug 1999 14.330% 4,167 1997
12.88% Pfd Stock t 30,000 v 15-Feb 2009 12.875% 0
0.00% n 0 0.000% 0
-----------
$ 34,167
-----------
Total Petro $320,476
Star Instruments:
- --------------------------
8.04% 1st Mortgage Notes n 85,000 v NA NA 8.040% - 0
8.25% WC Revolver n 0 NA NA 8.250% - NA
7.50% Acquisition Facility n 0 v NA NA 7.500% - NA
8.50% New Debt n 125,000 v NA NA 8.500% 0 NA
7.17% Pearl Notes n 11,000 NA NA 7.170% 0 NA
-----------
$210,000
-----------
Total Combined $530,476
Red/Exchg/Defease
% Red/ Red/Exchg Defeasance ---------------------- Exchanged
Petro Instruments: Exchanged Price Price Value Premium Int Rate Security Type
- -------------------------- ----------- ----------- ----------- --------- ---------- ------------ --------------------
11.96% Sr Notes 100.0% 110.0% $66,000 $0 8.5% Sr Notes
14.10% Sr Notes 100.0% 110.0% 3,410 310 Sr Notes
14.10% Sub Notes 100.0% 110.0% 3,410 310 Sub Notes
10.13% Sub Notes & Sr Notes 100.0% 100.0% 106.2% 50,000 - Sub Notes & Sr Notes
9.38% Sub Notes & Sr Notes 100.0% 100.0% 108.2% 75,000 - Sub Notes & Sr Notes
12.25% Sub Notes & Sr Notes 100.0% 105.0% 116.2% 85,313 4,063 Sub Notes & Sr Notes
8.00% Acq. & Other Notes
Payable 0.0% 100.0% - - Acq. & Other Notes
Payable
8.25% Existing Credit Facility 0.0% 100.0% - - Existing Credit
Facility
0.00% Other Notes 0.0% 0.0% - - 11.0% Other Notes
-----------
$4,683
Pfrd. Stock:
- --------------------------
14.33% Pfd Stock 100.0% 105.0% 4,375 208 Pfd Stock
12.88% Pfd Stock 100.0% 100.0% 30,000 - Pfd Stock
0.00% - -
----------- -----------
$ 34,167 $208
-----------
Total Petro $4,891
Star Instruments:
- --------------------------
8.04% 1st Mortgage Notes 0.0% 0.0% - - 1st Mortgage Notes
8.25% WC Revolver 0.0% 0.0% - - WC Revolver
7.50% Acquisition Facility 0.0% 0.0% - - Acquisition Facility
8.50% New Debt 0.0% 0.0% - - New Debt
7.17% Pearl Notes 0.0% 0.0% - - Pearl Notes
-----------
$0
-----------
Total Combined $4,891
Star Stand Alone Distribution Assumptions
- -------------------------------------------------------------------------------
Marginal Interest In
--------------------
Distribution Public GP
------------ --------- --------
Minimum Quarterly Distribution $2.20 98% 2%
First Target Distribution $2.42 98% 2%
Second Target Distribution/(1)/ $2.84 85% 15%
Third Target Distribution/(1)/ $3.70 75% 25%
Thereafter NM 50% 50%
Target Distribution Level $2.20
Annual Distribution Increase $0.00
Standard Distribution Structure ("S") or Target ("T") t
- --------------------------------------------------------------------------------
Star Pro Forma Distribution Assumptions
- --------------------------------------------------------------------------------------------------------------------------------
Marginal Interest In Incentive Rights
----------------------------- ----------------------------------
Distribution Public GP Incen. Rt. GP Sr. Sub.
------------ -------- ------ ---------- ------------ -----------------
Minimum Quarterly Distribution $2.20 98% 2% 0% 24% 76%
First Target Distribution $2.42 98% 2% 0% 24% 76%
Second Target Distribution/(1)/ $2.84 85% 2% 13% 24% 76%
Third Target Distribution/(1)/ $3.70 75% 2% 23% 24% 76%
Thereafter NM 50% 2% 48% 24% 76%
1998 1999 2000 2001 2002 Thereafter
------------ ---------- --------- ---------- ------------ -------------------
Annual Indicated Dist. Increase $0.00 $0.10 $0.10 $0.20 $0.20 $0.05
Target Indicated Dist. Level $2.20 $2.30 $2.40 $2.60 $2.80
Standard Distribution Structure ("S") or Target ("T") t
- -------------------------------------------------------------------------------------------------------------
3 of 18
PaineWebber Incorporated For Discussion
Purposes Only
PROJECT HEAT
================================================================================
PRO FORMA OPENING BALANCE SHEET
(in thousands except per share and per unit data) Scenario I: Base Case
OPENING BALANCE SHEET STAR GAS PETRO
------------------------------------- -------------------------------------
12/31/97 ADJUSTMENTS 9/30/98 12/31/97 ADJUSTMENTS 9/30/98
---------- ------------- ---------- ---------- ------------- ----------
Assets:
Cash $ 3,452 ($ 2,951) $ 501 $ 2,390 $10,615 $ 13,005
Other Current Assets 18,537 (3,142) 15,395 102,734 (43,030) 59,704
---------- ---------- ---------- ----------
Total Current Assets 21,989 15,895 105,124 72,709
PP&E and Intangibles, Net 108,809 (3,995) 104,814 124,804 - 107,783
Investments in Unconsolidated Affiliates - - - 7,535 (7,122) 413
Other Assets 48,653 (2,115) 46,538 10,383 (19) 10,364
---------- ---------- ---------- ----------
Total Assets 179,451 167,248 247,846 191,269
========== ========== ========== ==========
Liabilities:
Current Liabilities 11,514 (4,143) 7,371 92,688 - 70,110
8.25% Existing Credit Facility - 7,457 7,457 21,500 (21,500) -
Long Term Debt 96,000 - 96,000 278,378 7,931 286,309
Total Preferred Stock - - - 34,167 - 34,167
Other Liabilities 54 (3) 51 10,745 (47) 10,698
---------- ---------- ---------- ----------
Total Liabilities 107,568 110,879 437,478 401,284
Common Shareholder's/Partner's Equity 71,883 (15,515) 56,368 (189,632) (20,383) (210,015)
---------- ---------- ---------- ----------
Total Liabilities and Equity $179,451 $167,248 $247,846 $191,269
========== ========== ========== ==========
check - - -
PRO FORMA
MERGER STAR GAS
ADJUSTMENTS 9/30/98
----------- -----------
ASSETS:
Cash ($ 2,023) $ 10,982
Order Current Assets - 75,099
----------- -----------
Total Current Assets (2,023) 86,081
PP&B and Intangibles, Net - 212,597
Investments in Unconsolidated Affiliates (413) -
Other Assets - 56,902
----------- -----------
Total Assets (2,436) 355,580
LIABILITIES:
Current Liabilities - 77,481
8.25% Existing Credit Facility - 7,457
Long Term Debt (81,450) 300,859
Total Preferred Stock (34,167) -
Other Liabilities (10,698) 51
----------- -----------
Total Liabilities (126,315) 385,848
Commerce Shareholder's/Partner's Equity 123,378 (30,268)
----------- -----------
Total Liabilities and Equity ($ 2,937) $355,580
===========
check -
PRO FORMA CAPITAL STRUCTURE STAR GAS PETRO
------------------------------------- -------------------------------------
12/31/97 ADJUSTMENTS 9/30/98 12/31/97 ADJUSTMENTS 9/30/98
---------- ------------- ---------- ---------- ------------- ----------
Debt:
8.04% 1st Mortgage Notes $ 85,000 $ 85,000 $ 0 $ 0 $ 0
8.25% WC Revolver - 7,457 7,457 - - -
7.50% Acquisition Facility - - - - -
7.17% Pearl Notes 11,000 11,000 - - -
11.96% Sr Notes - - 60,000 - 60,000
14.10% Sr Notes - - 4,150 (1,050) 3,100
14.10% Sub Notes - - 4,150 (1,050) 3,100
10.13% Sub Notes & Sr Notes - - 50,000 - 50,000
9.38% Sub Notes & Sr Notes - - 75,000 - 75,000
12.25% Sub Notes & Sr Notes - - 81,250 - 81,250
0.00% Other Notes - - 0 - 0
8.00% Acg. & Other Notes Payable - - 16,798 (2,939) 13,859
8.25% Existing Credit Facility - - 0 - 0
8.46% Exchanged Debt - - - - -
8.50% New Debt - - - - -
---------- ---------- ---------- ----------
Total Debt 96,000 103,457 291,348 286,309
---------- ---------- ---------- ----------
Preferred Stock:
14.33% Pfd Stock - - 4,167 - 4,167
12.88% Pfd Stock - - 30,000 - 30,000
---------- ---------- ---------- ----------
Total Preferred - - 34,167 34,167
---------- ---------- ---------- ----------
Common Shareholder's/Partner's Equity 71,883 56,368 (189,632) (20,383) (210,015)
---------- ---------- ---------- ----------
Total Capital $167,883 $159,825 $135,883 $110,461
========== ========== ========== ==========
PRO FORMA
MERGER STAR GAS
ADJUSTMENTS 9/30/98
----------- -----------
Debt:
8.04% 1st Mortgage Notes $ 0 $ 85,000
8.25% WC Revolver - 7,457
7.50% Acquisition Facility - -
7.17% Pearl Notes - 11,000
11.96% Sr Notes (60,000) -
14.10% Sr Notes (3,100) -
14.10% Sub Notes (3,100) -
10.13% Sub Notes & Sr Notes (50,000) -
9.38% Sub Notes & Sr Notes (75,000) -
12.25% Sub Notes & Sr Notes (81,250) -
0.00% Other Notes - -
8.00% Acq. & Other Notes Payable - 13,859
8.25% Existing Credit Facility - -
8.46% Exchanged Debt 66,000 66,000
8.50% New Debt 125,000 125,000
----------- -----------
Total Debt (81,450) 308,316 (123,543,00)
-----------
Preferred Stock:
14.33% Pfd Stock (4,167) -
12.88% Pf\ Stock (30,000) -
----------- -----------
Total Preferred (34,167) -
Common Shareholder's/Partner's Equity 123,378 (30,268)
-----------
Total Capital $278,048
===========
4 of 18
PROJECT HEAT
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Scenario 1: Base Case
STAR GAS STAND ALONE INCOME STATEMENT
Estimated Normalized Projected
--------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
--------- ---------- -------- -------- -------- -------- -------- -------- --------
EBITDA $ 18,629 $ 22,781 $ 26,730 $ 28,541 $ 30,361 $ 32,188 $ 34,125 $ 36,178 $ 38,356
Depreciation and Amortization 11,629 11,629 12,768 15,111 16,137 17,178 1?,229 19,291 20,364
--------- ---------- -------- -------- -------- -------- -------- -------- --------
EBIT 7,000 11,152 13,962 13,430 14,224 15,010 15,896 16,887 17,992
Interest Response (7,807) (7,807) (9,114) (10,028) (10,748) (11,276) (9,858) (10,217) (10,452)
Interest Income 18 18 35 35 35 35 35 35 35
Other Income - - - - - - - - -
--------- ---------- -------- -------- -------- -------- -------- -------- --------
Income Before Taxes (789) 3,363 4,883 3,437 3,511 3,769 6,073 6,705 7,575
Current Income Taxes (25) (25) (25) (25) (25) (25) (25) (25) (25)
Deferred Income Taxes - - - - - - - - -
--------- ---------- -------- -------- -------- -------- -------- -------- --------
Net Income Available to Common ($814) $ 3,338 $ 4,858 $ 3,412 $ 3,486 $ 3,744 $ 6,048 $ 6,680 $ 7,550
========= ========== ======== ======== ======== ======== ======== ======== ========
STAR GAS STAND ALONE UNITS
Outstanding
Common Units
Beginning Balance 3,832 3,832 3,832 4,317 4,317 4,517 4,717 4,717 4,717
Insurance 0 0 485 0 200 200 0 0 0
Buyback 0 0 0 0 0 0 0 0 0
--------- ---------- -------- -------- -------- -------- -------- -------- --------
Ending Balance 3,832 3,832 4,317 4,317 4,517 4,717 4,717 4,717 4,717
--------- ---------- -------- -------- -------- -------- -------- -------- --------
Subordinated Units
Beginning Balance 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396
Insurance 0 0 0 0 0 0 0 0 0
Buyback 0 0 0 0 0 0 0 0 0
--------- ---------- -------- -------- -------- -------- -------- -------- --------
Ending Balance 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396
--------- ---------- -------- -------- -------- -------- -------- -------- --------
GP Implied Units
Beginning Balance 127 127 127 127 127 127 127 127 127
Insurance 0 0 0 0 0 0 0 0 0
Buyback 0 0 0 0 0 0 0 0 0
--------- ---------- -------- -------- -------- -------- -------- -------- --------
Ending Balance 127 127 127 127 127 127 127 127 127
--------- ---------- -------- -------- -------- -------- -------- -------- --------
Total Units 6,355 6,355 6,840 6,840 7,040 7,240 7,240 7,240 7,240
========= ========== ======== ======== ======== ======== ======== ======== ========
PaineWebber Incorporated For discussion purposes only
5 of 18
PROJECT HEAT
================================================================================
(in thousands except per share and per unit data)
Scenario 1: Base Case Estimated Projected
----------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004 2005
-------- ------ ------- ------ ------- ------- ------- -------
STAR GAS STAND ALONE BALANCE SHEET
Assets:
Cash $ 501 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Other Current Assets 15,395 18,600 19,317 20,037 20,760 21,526 22,339 23,200
--------- -------- -------- -------- ------- ------- ------- -------
Total Current Assets 15,895 19,600 20,317 21,037 21,760 22,526 23,339 24,200
PP&E and Intangibles, Net 104,814 112,117 112,225 111,632 110,148 107,768 104,484 100,291
Other Assets 46,538 46,538 46,538 46,538 46,538 46,538 46,538 46,538
--------- -------- ------- ------- ------- ------- ------- -------
Total Assets 167,248 178,255 179,080 179,207 178,446 176,832 174,361 171,029
========= ======== ======= ======= ======= ======= ======= =======
Liabilities:
Current Liabilities 7,371 10,576 11,293 12,013 12,736 13,502 14,315 15,176
Total Debt 103,457 109,651 120,328 125,205 130,133 135,685 139,702 141,910
Other Liabilities 51 51 51 51 51 51 51 51
--------- -------- -------- -------- -------- ------- ------- -------
Total Liabilities 110,879 120,279 131,672 137,869 142,920 149,239 154,068 157,167
Partner's Equity 56,368 57,976 47,407 41,338 35,526 27,593 20,293 13,862
--------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities and Equity $ 167,248 $178,255 $179,082 $179,207 $178,446 $176,832 $174,361 $171,029
========= ======== ======== ======== ======== ======== ======== ========
Check - - - - - - - -
STAR GAS STAND ALONE CASH FLOW STATEMENT
Net Income $ 4,858 $ 3,412 $ 3,486 $ 3,744 $ 6,048 $ 6,680 $ 7,550
Depreciation and Amortization 12,768 15,111 16,137 17,178 18,229 19,291 20,364
Deferred Taxes - - - - - - -
Other Income - - - - - - -
Other Asset/Liabilities - - - - - - -
Change in Working Capital (0) - (0) (0) 0 (0) (0)
-------- -------- -------- -------- ------- ------- -------
Cash from Operations 17,626 18,523 19,623 20,922 24,277 25,971 27,914
-------- -------- -------- -------- ------- ------- -------
Maintenance CapEx (3,274) (3,395) (3,694) (3,816) (3,942) (4,072) (4,206)
Internal Growth CapEx (1,797) (1,824) (1,850) (1,878) (1,906) (1,935) (1,965)
External Growth CapEx (15,000)(10,000) (10,000) (10,000) (10,000) (10,000) (10,000)
-------- -------- -------- -------- ------- ------- -------
Cash from Investments (20,071)(15,219) (15,544) (15,694) (15,848) (16,007) (16,171)
-------- -------- -------- -------- ------- ------- -------
Acquisition Borrowing 16,797 11,824 11,850 11,878 11,906 11,935 11,965
Remaining Distributions to Repay Debt (336) (1,112) (1,913) (3,090) (6,319) (7,884) (9,692)
Amortization of Mortgage Notes - - - - - - -
Borrowing to Repay Existing Debt - - - - - - -
Borrowing for Changes in WC 0 - 0 0 (0) 0 0
Borrowing to Pay Full MQD - - - - - - -
Change in Equity 10,731 - 4,425 4,425 - - -
Distributions (13,981) (13,981) (13,981) (13,981) (13,981) (13,981)(13,981)
-------- -------- -------- -------- ------- ------- -------
Cash from Financing 13,211 (3,269) 381 (768) (8,393) (9,929)(11,708)
-------- -------- -------- -------- ------- ------- -------
Net Cash Flow 10,766 35 4,460 4,460 35 35 35
Initial Cash Balance 501 1,000 1,000 1,000 1,000 1,000 1,000
-------- -------- -------- -------- ------- ------- -------
Cash Available for Paydown on WC Revolver and Acq. Facility 11,266 1,035 5,460 5,460 1,035 1,035 1,035
Minimum Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Borrowing (Paydown) on WC Revolver and Acq. Facility (10,266) (35) (4,460) (4,460) (35) (35) (35)
-------- -------- -------- -------- ------- ------- -------
Net Change in Cash 499 - - - - - 0
-------- -------- -------- -------- ------- ------- -------
Ending Cash Balance $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
======== ======== ======== ======== ======= ======= =======
6 of 18
Project Heat
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Scenario I: Base Case Projected
Estimated Normalized -------------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
------- ------- ------- ------- ------- ------- ------- ------- -------
Star Gas Stand Alone
EBITDA Calculation
(See Tab 3: Cases)
- ------------------------------------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
EBITDA Growth Rate 22.3% 1.7% 1.7% 1.7% 1.7% 1.7% 17% 1.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Base EBITDA Timing
End 1998
Mid 1999
Mid 2000
Mid 2001
Mid 2002
Mid 2003
Mid 2004
Mid 2005
------- ------- ------- ------- ------- ------- ------- ------- -------
Total EBITDA $18,629 $22,781 $26,730 $28,541 $30,361 $32,188 $34,125 $36,178 $38,356
======= ======= ======= ======= ======= ======= ======= ======= =======
Star Gas Stand Alone
Depreciation Calulation
Existing Depreciation $11,629 $11,629 $11,629 $11,629 $11,629 $11,629 $11,629 $11,629 $11.629
Maintenenance CapEx: 1998 2,710 $0 $0 $181 $181 $181 $181 $181 $181 $181
Annual Growth: 3.3% 1999 3,274 109 218 218 218 218 218 218
2000 3,395 113 226 226 226 226 226
2001 3,694 123 246 246 246 246
2002 3,816 127 254 254 254
2003 3,942 131 263 263
2004 4,072 136 271
2005 4,206 140
Internal Growth CapEx: 1998 1,841 - - 123 123 123 123 123 123 123
Annual Growth: 1.5% 1999 1,797 60 120 120 120 120 120 120
2000 1,824 61 122 122 122 122 122
2001 1,850 62 123 123 123 123
2002 1,878 63 125 125 125
2003 1,906 64 127 127
2004 1,935 65 129
2005 1,965 65
External Growth CapEx: 1998 20,000 - - - 1,333 1,333 1,333 1,333 1,333 1,333
Annual Growth: 0.0% 1999 15,000 667 1,000 1,000 1,000 1,000 1,000 1,000
2000 10,000 333 667 667 667 667 667
2001 10,000 333 667 667 667 667
2002 10,000 333 667 667 667
2003 10,000 333 667 667
2004 10,000 333 667
2005 10,000 333
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Depreciation: $11,629 $11,629 $12,768 $15,111 $16,137 $17,178 $18,229 $19,291 $20,364
======= ======= ======= ======= ======= ======= ======= ======= =======
PaineWebber Incorporated 7 of 18 For Discussion Purposes Only
Project Heat
- --------------------------------------------------------------------------------
Star Gas Stand Alone Debt Schedule
(in thousands except per share and per unit data)
Scenario I: Base Case Projected
Estimated Normalized ------------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
------- ------- ------- ------- ------- ------- ------- ------- -------
8.04% 1st Mortgage Notes
Beginning Balance $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000
Borrowing 0 0 0 0 0 0 0 0 0
Amortization 0 0 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000
Interest Payment 8.04% 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834
Make-Whole Payment 0 0 0 0 0 0 0 0 0
7.17% Pearl Notes
Beginning Balance $0 $0 $11,000 $11,000 $11,000 $11,000 $11,000 $11,000 $11,000
Borrowing 11,000 11,000 0 0 0 0 0 0 0
Amortization 0 0 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000
Interest Payment 7.17% 613 613 789 789 789 789 789 789 789
% of year Pearl Notes
Outstanding 77.7% 77.7% 0 0 0 0 0 0 0
8.25% WC Revolver
Beginning Balance - - $7,457 $7,457 $7,457 $7,457 $7,457 $7,457 $7,457
Borrowing for Change in WC - - 0 - 0 0 (0) 0 0
Borrowing for Pay Full MQD 5,894 1,742 - - - - - - -
Borrowing/(Payment) 1,563 5,715 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance 7,457 7,457 7,457 7,457 7,457 7,457 7,457 7,457 7,457
Effective Avg WC Balance 3,729 3,729 3,729 3,729 3,729 3,729 3,729 3,729 3,729
Interest Payment 8.25% 308 308 308 308 308 308 308 308 308
7.50% Acquisition Facility
Beginning Balance - - $0 $6,194 $16,871 $22,348 $26,676 $32,228 $36,245
External Acquisitions 20,000 20,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
External Acquisitions at
Beginning of 1999 - - 5,000 - - - - - -
Internal Acquisitions 1,841 1,841 1,797 1,824 1,850 1,878 1,906 1,935 1,965
Borrowings to Repay
Existing Debt - - - - - - - - -
Payment - - (10,266) (35) (4,460) (4,460) (35) (35) (35)
Remaining Distributions
to Repay Debt - - (366) (1,112) (1,913) (3,090) (6,319) (7,884) (9,692)
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance 0 0 6,194 16,871 22,348 26,676 32,228 36,245 38,483
Interest Payment 7.50% 69 69 420 865 1,471 1,838 1,834 2,193 2,427
Total Debt
Beginning Balance $85,000 $85,000 $103,457 $109,651 $120,328 $125,805 $130,133 $135,685 $139,702
Amortization of Mortgage Notes - - - - - - - - -
Borrowing for Pearl Notes 11,000 11,000 - - - - - - -
Borrowing for Changes in WC - - 0 - 0 0 (0) 0 0
Borrowing to Pay Full MQD 5,894 1,742 - - - - - - -
Acquisition Borrowing 21,841 21,841 16,797 11,824 11,850 11,878 11,906 11,935 11,965
Borrowing to Repay Existing Debt - - - - - - - - -
Remaining Distributions to
Repay Debt - - (366) (1,112) (1,913) (3,090) (6,319) (7,884) (9,692)
Borrowing/(Payment) on WC
Revolver and Acq. Facility 1,563 5,715 (10,266) (35) (4,460) (4,460) (35) (35) (35)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Ending Balance $125,298 $125,298 $109,651 $120,328 $125,805 $130,133 $135,685 $139,702 $141,940
======== ======== ======== ======== ======== ======== ======== ======== ========
Interest Expense
Interest Expense $7,824 $7,824 $8,350 $8,795 $9,401 $9,769 $9,764 $10,123 $10,358
Bank Fee 94 94 94 94 94 94 94 94 94
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Interest Payment $7,807 $7,807 $9,114 $10,028 $10,748 $11,276 $9,858 $10,217 $10,452
======= ======= ======= ======= ======= ======= ======= ======= =======
*** Total Interest Numbers are hard input per A.G. Edwards' request.***
PaineWebber Incorporated For discussion purposes only
8 of 18
Project Heat
- --------------------------------------------------------------------------------
Star Gas Stand Alone Schedule of Actual Distributions Scenario I: Base Case
(in thousands except per share and per unit data)
Projected
Assumes Revised Target Estimated Normalized -------------------------------------------------------------------------
Distribution Structure 1998 1998 1999 2000 2001 2002 2003 2004 2005
------- ------- ------- ------- ------- ------- ------- ------- -------
Distributable Cash
- ------------------
Cash from Operations $10,815 $14,967 $17,626 $18,523 $19,623 $20,922 $24,277 $25,971 $27,914
Maintenance CapEx (2,710) (2,710) (3,274) (3,395) (3,694) (3,816) (3,942) (4,072) (4,206)
Other (18) (18) (35) (35) (35) (35) (35) (35) (35)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total MLP Distributable Cash Flow 8,087 12,239 14,317 15,093 15,894 17,071 20,300 21,864 23,673
Distributable Cash Flow/Unit $ 1.27 $ 1.93 $ 2.25 $ 2.38 $ 2.50 $ 2.69 $ 3.19 $ 3.44 $ 3.73
Structure
- ---------
Common Unit Ending Balance 3,832 3,832 3,832 3,832 3,832 3,832 3,832 3,832 3,832
Subordinated Units 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396 2,396
General Partner Interest Unit
Equivalent 127 127 127 127 127 127 127 127 127
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Units Outstanding 6,355 6,355 6,355 6,355 6,355 6,355 6,355 6,355 6,355
Distribution Levels
- -------------------
MQD $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20
First Target $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42
Second Target $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84 $ 2.84
Third Target $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70 $ 3.70
Indicated Cash Distribution $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.20
Distribution of MQD
- -------------------
Cash Available 8,087 12,239 14,317 15,093 15,894 17,071 20,300 21,864 23,673
Cash Borrowed to Pay Full MQD 5,894 1,742 0 0 0 0 0 0 0
Allocation to:
Common Units 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430
Subordinated Units 5,271 5,271 5,271# 5,271# 5,271 5,271# 5,271# 5,271 5,271
General Partner Interest 280 280 280# 280# 280 280# 280# 280 280
First Target Distribution
- -------------------------
Cash Available 0 0 336 1,112 1,913 3,090 6,319 7,884 9,692
Cash Required for Target
Distribution 0 0 1,398 1,398 1,398 1,398 1,398 1,398 1,398
Cash Required for Indicated
Distribution 0 0 0 0 0 0 0 0 0
Actual Cash Distributed 0 0 0 0 0 0 0 0 0
Allocation to:
Common Units 0 0 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0 0 0
Second Target Distribution
- --------------------------
Cash Available 0 0 0 0 0 0 0 0 0
Cash Required for Target
Distribution 0 0 0 0 0 0 0 0 0
Cash Required for Indicated
Distribution 0 0 0 0 0 0 0 0 0
Actual Cash Distributed 0 0 0 0 0 0 0 0 0
Allocation to:
Common Units 0 0 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0 0 0
Incentive Distribution 0 0 0 0 0 0 0 0 0
Third Target Distribution
- -------------------------
Cash Available 0 0 0 0 0 0 0 0 0
Cash Required for Target
Distribution 0 0 0 0 0 0 0 0 0
Cash Required for Indicated
Distribution 0 0 0 0 0 0 0 0 0
Actual Cash Distributed 0 0 0 0 0 0 0 0 0
Allocation to:
Common Units 0 0 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0 0 0
Incentive Distribution 0 0 0 0 0 0 0 0 0
PaineWebber Incorporated 9 0f 18 For discussion purposes only
PROJECT HEAT
===================================================================================================================================
STAR GAS STAND ALONE SCHEDULE OF ACTUAL DISTRIBUTIONS (CONT'D) SCENARIO I: BASE CASE
(in thousands except per share and per unit data)
ESTIMATED NORMALIZED PROJECTED
--------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
--------- ---------- -------- -------- -------- -------- -------- -------- --------
Remaining Distribution
- ----------------------
Cash Available 0 0 0 0 0 0 0 0 0
Allocation to:
Common Units 0 0 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0 0 0
Incentive Distribution 0 0 0 0 0 0 0 0 0
Repay Indebtedness 0 0 336 1,112 1,913 3,090 6,319 7,884 9,692
Total Distributions
- -------------------
Common Units 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430 8,430
Subordinated Units 5,271 5,271 5,271 5,271 5,271 5,271 5,271 5,271 5,271
General Partner Interest 280 280 280 280 280 280 280 280 280
Incentive Distribution 0 0 0 0 0 0 0 0 0
--------- ---------- -------- -------- -------- -------- -------- -------- --------
Total Distribution $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981 $13,981
========= ========== ======== ======== ======== ======== ======== ======== ========
Total Distributions Per Unit
- ----------------------------
Common Unit $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20
Subordinated Unit 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20
GP Unit 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20 2.20
PaineWebber Incorporated For discussion purposes only
10 of 18
Project Heat
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Scenario I: Base Case Projected
Estimated Normalized -------------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
------- ------- ------- ------- ------- ------- ------- ------- -------
Petro EBITDA Calculation
- ------------------------------------------------------------------------------------------------------------------------------------
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
EBITDA Growth Rate (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)% (4.1)%
- ------------------------------------------------------------------------------------------------------------------------------------
Base EBITDA Timing
Acqisitions: End 1998 $15,000
Mid 1999 30,000
Mid 2000 30,000
Mid 2001 30,000
Mid 2002 30,000
Mid 2003 30,000
Mid 2004 30,000
Mid 2005 30,000
------- ------- ------- ------- ------- ------- ------- ------- --------
Total EBITDA $38,500 $43,440 $55,798 $62,665 $69,509 $76,324 $83,807 $92,024 $101,047
======= ======= ======= ======= ======= ======= ======= ======= ========
Petro Depreciation Calculation
Existing Depreciation $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660 $29,660
Maintenenance CapEx: 1998 $3,500 - - $233 $233 $233 $233 $233 $233 $233
Annual Growth: 0.0% 1999 3,500 117 233 233 233 233 233 233
2000 3,500 117 233 233 233 233 233
2001 3,500 117 233 233 233 233
2002 3,500 117 233 233 233
2003 3,500 117 233 233
2004 3,500 117 233
2005 3,500 117
Internal Growth CapEx: 1998 $0 - - - - - - - - -
Annual Growth: 0.0% 1999 0 - - - - - - -
2000 0 - - - - - -
2001 0 - - - - -
2002 0 - - - -
2003 0 - - -
2004 0 - -
2005 0 -
External Growth CapEx: 1998 $15,000 - - 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Annual Growth: 0.0% 1999 30,000 1,000 2,000 2,000 2,000 2,000 2,000 2,000
2000 30,000 1,000 2,000 2,000 2,000 2,000 2,000
2001 30,000 1,000 2,000 2,000 2,000 2,000
2002 30,000 1,000 2,000 2,000 2,000
2003 30,000 1,000 2,000 2,000
2004 30,000 1,000 2,000
2005 30,000 1,000
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Depreciation: $29,660 $29,660 $32,010 $34,243 $36,477 $38,710 $40,943 $43,177 $45,410
======= ======= ======= ======= ======= ======= ======= ======= =======
PaineWebber Incorporated 11 of 18 For Discussion Purposes Only
Project Heat
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Scenario I: Base Case
STAR PRO FORMA INCOME STATEMENT
Projected
Estimated Normalized ----------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
--------- ---------- ------- ------- ------- ------- -------- -------- --------
Combined EBITDA $57,129 $66,221 $82,528 $91,206 $99,870 $108,512 $117,932 $128,202 $139,402
Consolidated Savings 500 500 500 500 500 500 500 500 500
------- ------- ------- ------- ------- -------- -------- -------- --------
Pro Forma EBITDA 57,629 66,721 83,028 91,706 100,370 109,012 118,432 128,702 139,902
Depreciation and Amortization 41,289 41,289 44,778 49,354 52,613 55,888 59,173 62,468 65,774
------- ------- ------- ------- ------- -------- -------- -------- --------
EBIT 16,340 25,432 38,250 42,352 47,757 53,124 59,260 66,235 74,128
Interest Expense (27,697) (27,697) (28,488) (30,079) (30,142) (28,240) (25,665) (22,206) -
Interest Income 384 384 35 35 35 35 35 35 35
Other Income - - - - - - - - -
EBT (10,972) (1,880) 9,797 12,308 17,650 24,919 33,629 44,063 74,163
------- ------- ------- ------- ------- -------- -------- -------- --------
Current Income Taxes (525) (525) (525) (525) (525) (525) (525) (525) (525)
Deferred Income Taxes - - - - - - - - -
------- ------- ------- ------- ------- -------- -------- -------- --------
Net Income Available to Common ($11,497) ($2,405) $9,272 $11,783 $17,125 $24,394 $33,104 $43,538 $73,638
======= ======== ======= ======= ======= ======== ======= ======== ========
STAR PRO FORMA UNITS OUTSTANDING
Common Units
Beginning Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418
Issuance - - - - - - - -
Buyback - - - - - - - -
------- ------- ------- ------- ------- -------- -------- -------- --------
Ending Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418
SR Subordinated Units
Beginning Balance 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296
Issuance - - - - - - - -
Buyback - - - - - - - -
------- ------- ------- ------- ------- -------- -------- -------- --------
Ending Balance 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296
Subordinated Units
Beginning Balance 754 754 754 754 754 754 754 754
Issuance - - - - - - - -
Buyback - - - - - - - -
------- ------- ------- ------- ------- -------- -------- -------- --------
Ending Balance 754 754 754 754 754 754 754 754 754
GP Implied Units
Beginning Balance 295 295 295 295 295 295 295 295
Issuance - - - - - - - -
Buyback - - - - - - - -
------- ------- ------- ------- ------- -------- -------- -------- --------
Ending Balance 295 295 295 295 295 295 295 295 295
Total 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764
======= ======= ======= ======= ======= ======== ======== ======== ========
PaineWebber Incorporated 12 of 18 For Discussion Purposes Only
Project Heat
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Star Pro Forma Balance Sheet Scenario I: Base Case
Projected
Estimated --------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004 2005
-------- -------- -------- -------- -------- -------- -------- --------
Assets:
Cash $ 10,982 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Other Current Assets 75,099 109,247 120,915 132,563 144,182 156,847 170,655 185,713
-------- -------- -------- -------- -------- -------- -------- --------
Total Current Assets 86,081 110,247 121,915 133,563 145,182 157,847 171,655 186,713
PP&E and Intangibles, Net 212,597 221,390 220,754 217,185 210,491 200,667 187,707 171,604
Other Assets 56,902 56,902 56,902 56,902 56,902 56,902 56,902 56,902
-------- -------- -------- -------- -------- -------- -------- --------
Total Assets 355,580 388,539 399,571 407,651 412,576 415,417 416,265 415,219
======== ======== ======== ======== ======== ======== ======== ========
Liabilities:
Current Liabilities 77,481 111,629 123,297 134,945 146,564 159,229 173,038 188,095
8.25% Existing Credit Facility 7,457 7,457 7,457 47,422 87,387 127,352 167,317 207,282
Total LT Debt 300,859 324,355 347,369 325,503 296,647 256,824 204,395 119,688
Other Liabilities 51 51 51 51 51 51 51 51
-------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities 385,848 443,492 478,174 507,921 530,649 543,456 544,801 515,117
Preferred Stock - - - - - - - -
Common Shareholder's Equity (30,268) (54,953) (78,603) (100,271) (118,074) (128,040) (128,536) (99,987)
-------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities and Equity $355,580 $388,539 $399,571 $407,651 $412,576 $415,417 $416,265 $415,219
======== ======== ======== ======== ======== ======== ======== ========
Check - - - - - - - -
Star Pro Forma Cash Flow Statement
Net Income $ 9,272 $ 11,783 $ 17,125 $ 24,394 $ 33,104 $ 43,538 $ 73,638
Depreciation and Amortization 44,778 49,354 52,613 55,888 59,173 62,4682 65,774
Deferred Taxes - - - - - - -
Other Assets/Liabilities - - - - - - -
Change in Non-Cash Working Capital - - 0 - - - -
-------- -------- -------- -------- -------- -------- --------
Cash from Operations 54,050 61,137 69,738 80,282 92,277 106,006 139,412
Maintenance CapEx (6,774) (6,895) (7,194) (7,316) (7,442) (7,572) (7,706)
Internal Growth CapEx (1,797) (1,824) (1,850) (1,878) (1,906) (1,935) (1,965)
External Growth CapEx (45,000) (40,000) (40,000) (40,000) (40,000) (40,000) (40,000)
-------- -------- -------- -------- -------- -------- --------
Cash from Investments (53,571) (48,719) (49,044) (49,194) (49,348) (49,507) (49,671)
Acquisition Borrowing 46,797 46,824 1,850 1,878 1,906 1,935 1,965
Remaining Distributions to Repay Debt (13,284) (18,774) (23,717) (30,734) (41,729) (54,364) (86,671)
Amortization of Existing Debt (5,478) (8,141) (60) (60) (120) - -
Borrowing to Repay Existing Debt 5,478 8,141 60 60 120 - -
Borrowing for Changes in WC - - - - - (0) -
Change in Common Equity - - - - - - -
Distributions (33,957) (35,433) (38,792) (42,196) (43,070) (44,035) (44,999)
-------- -------- -------- -------- -------- -------- --------
Cash from Financing (444) (7,383) (60,659) (71,053) (82,893) (96,464) (129,706)
Net Cash Flow 35 5,035 (39,965) (39,965) (39,965) (39,965) (39,965)
Initial Cash Balance 10,982 1,000 1,000 1,000 1,000 1,000 1,000
-------- -------- -------- -------- -------- -------- --------
Cash Available for Paydown on
WC Revolver and Acq. Facility 11,017 6,035 (38,965) (38,965) (38,965) (38,965) (38,965)
Minimum Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Borrowing/(Paydown) on
WC Revolver and Acq. Facility (10,017) (5,035) 39,965 39,965 39,965 39,965 39,965
-------- -------- -------- -------- -------- -------- --------
Ending Cash Balance 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Net Change in Cash ($9,982) $0 ($0) $0 ($0) $0 ($0)
======== ======== ======== ======== ======== ======== ========
PaineWebber Incorporated 13 of 18 For Discussion Purposes Only
Project Heat
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Projected
Estimated Normalized ----------------------------------------------------------------
Star Pro Forma Debt Schedule 1998 1998 1999 2000 2001 2002 2003 2004 2005
------- ------- ------- ------- ------- ------- ------- ------- -------
Scenario I: Base Case
8.04% 1st Mortgage Notes
Beginning Balance $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000 $85,000
Borrowing - - - - - - - - -
Amortization - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000 85,000
Interest Payment 8.04% 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834 6,834
7.17% Pearl Notes
Beginning Balance 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000
Borrowing - - - - - - - - -
Amortization - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000 11,000
Interest Payment 7.17% 789 789 789 789 789 789 789 789 789
0.00% Other Notes
Beginning Balance - - - - - - - - -
Borrowing - - - - - - - - -
Amortization - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance - - - - - - - - -
Interest Payment 0.00% - - - - - - - - -
8.50% New Debt
Beginning Balance 125,000 125,000 125,000 130,478 138,619 138,679 138,739 138,859 138,859
Borrowing - - 5,478 8,141 60 60 120 - -
Amortization - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance 125,000 125,000 130,478 138,619 138,679 138,739 138,859 138,859 138,859
Interest Payment 8.50% 10,625 10,625 10,858 11,437 11,785 11,790 11,798 11,803 11,803
Exchange of 8.46% Senior
Notes
Beginning Balance - - 66,000 66,000 66,000 66,000 66,000 66,000 66,000
Borrowing 66,000 66,000 - - - - - - -
Amortization - - - - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance 66,000 66,000 66,000 66,000 66,000 66,000 66,000 66,000 66,000
Interest Payment 8.46% 5,584 5,584 5,584 5,584 5,584 5,584 5,584 5,584 5,584
8.00% Acq. & Other Notes
Payable
Beginning Balance 16,798 16,798 13,859 8,381 240 180 120 - -
Borrowing - - - - - - - - -
Amortization (2,939) (2,939) (5,478) (8,141) (60) (60) (120) - -
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance 13,859 13,859 8,381 240 180 120 - - -
Interest Payment 8.00% 1,226 1,226 890 345 17 12 5 - -
8.25% WC Revolver
Beginning Balance - - 7,457 7,457 7,457 47,422 87,387 127,352 167,317
Borrowing for Change
in WC - - - - (0) - - - -
Borrowing/(Payment) - - - - 39,965 39,965 39,965 39,965 39,965
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance - 7,457 7,457 7,457 47,422 87,387 127,352 167,317 207,282
Effective Avg WC Balance 23,600 23,600 21,500 21,500 21,500 21,500 21,500 21,500 21,500
Interest Payment 8.25% 1,947 1,947 1,774 1,774 1,774 1,774 1,774 1,774 1,774
7.50% Acquisition Facility
Beginning Balance - - - 23,496 46,510 24,644 (4,212) (44,035) (96,464)
External Acquisitions - - 40,000 45,000 - - - - -
External Acquisitions
at Beginning of 1999 - - 5,000 - - - - - -
Internal Acquisitions - - 1,797 1,824 1,850 1,878 1,906 1,935 1,965
Payment - - (10,017) (5,035) - - - - -
Remaining Distributions
to Repay Debt - - (13,284) (18,774) (23,717) (30,734) (41,729) (54,364) (86,671)
------- ------- ------- ------- ------- ------- ------- ------- -------
Ending Balance - - 23,496 46,510 26,644 (4,212) (44,035) (96,464)(181,171)
Interest Payment 7.50% $0 $0 $1,069 $2,625 $2,668 $766 ($1,809) ($5,269)($10,411)
PaineWebber Incorporated 14 of 18 For Discussion Purposes Only
PROJECT HEAT
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data) Scenario 1: Base Case
Projected
Estimated Normalized ----------------------------------------------
STAR PRO FORMA DEBT SCHEDULE (CONT'D) 1998 1998 1999 2000 2001 2002 2003
--------- --------- ------- ------- ------ ------- ------
Total Pro Forma Debt
Beginning Balance $237,798 $237,798 308,316 $331,812 $354,826 $372,925 $384,034
Amortization of Existing Debt (2,939) (2,939) (5,478) (8,141) (60) (60) (120)
Borrowing for Changes in WC - - - - (0) - -
Acquisition Borrowing - - 46,797 46,824 1,850 1,878 1,906
Borrowing to Repay Existing Debt - - 5,478 8,141 60 60 120
Remaining Distributions to Repay Debt - - (13,284) (18,774) (23,717) (30,734) (41,729)
Borrowing/(Payment) on WC Revolver and Acq. Facility - - (10,017) (5,035) 39,965 39,965 39,965
-------- -------- ------- -------- -------- -------- --------
Ending Balance 234,859 234,859 331,812 354,826 372,925 384,034 384,176
Interest Expense 27,005 27,005 27,796 29,387 29,450 27,548 24,973
Chase Fees 692 692 692 692 692 692 692
-------- -------- ------- -------- -------- -------- --------
Total Interest Payment 27,697 27,697 28,488 30,079 30,142 28,240 25,665
======== ======== ======= ======== ======== ======== ========
PROJECT HEAT
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data) Scenario 1: Base Case
Projected
----------------------
STAR PRO FORMA DEBT SCHEDULE (CONT'D) 2004 2005
----------------------
Total Pro Forma Debt
Beginning Balance $384,176 $371,712
Amortization of Existing Debt - -
Borrowing for Changes in WC - -
Acquisition Borrowing 1,935 1,965
Borrowing to Repay Existing Debt - -
Renaming Distributions to Repay Debt (54,364) (86,671)
Borrowing/(Payment) on WC Revolver and Acq. Facility 39,965 39,965
-------- --------
Ending Balance 371,712 326,970
Interest Expense 21,514 16,372
Chase Fees 692 692
-------- --------
Total Interest Payment $22,206 $17,064
========= ========
15 of 18
Project Heat
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Scenario I: Base Case
STAR PRO FORMA DISTRIBUTION SCHEDULE OF ACTUAL DISTRIBUTIONS
Projected
Estimated Normalized ----------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
--------- ---------- ------- ------- ------- ------- -------- -------- --------
Distributable Cash
Cash from Operations (excl chg in WC) $29,792 $38,884 $54,050 $61,137 $69,738 $80,282 $92,277 $106,006 $139,412
Maintenance CapEx (6,210) (6,210) (6,774) (6,895) (7,194) (7,316) (7,442) (7,572) (7,706)
Other (384) (384) (35) (35) (35) (35) (35) (35) (35)
------- ------- ------- ------- ------- -------- -------- -------- --------
Total MLP Distributable Cash Flow 23,197 32,289 47,241 54,207 62,509 72,931 84,800 98,399 131,671
Distributable Cash Flow/Unit $1.57 $2.19 $3.20 $3.67 $4.23 $4.94 $5.74 $6.66 $8.92
Structure
Common Unit Ending Balance 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418 10,418
SR Subordinated Units 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296 3,296
Subordinated Units 754 754 754 754 754 754 754 754 754
General Partner Interest Unit
Equivalent 295 295 295 295 295 295 295 295 295
------- ------- ------- ------- ------- -------- -------- -------- --------
Total Units Outstanding 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764 14,764
Distribution Levels $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20
MQD $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20 $2.20
First Target $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42 $2.42
Second Target $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84 $2.84
Third Target $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70 $3.70
Indicated Cash Distribution $2.20 $2.20 $2.30 $2.40 $2.60 $2.80 $2.85 $2.90 $2.95
Distribution of MQD
Cash Available 23,197 32,289 47,241 54,207 62,509 72,931 84,800 98,399 131,671
Allocaton to:
Common Units 22,733 22,920 22,920 22,920 22,920 22,920 22,920 22,920 22,920
SR Subordinated Units 0 7,251 7,251 7,251 7,251 7,251 7,251 7,251 7,251
Subordinated Units 0 1,472 1,659 1,659 1,659 1,659 1,659 1,659 1,659
General Partner Interest 464 646 650 650 650 650 650 650 650
First Target Distribution
Cash Available 0 0 14,761 21,727 30,028 40,450 52,319 65,919 99,190
Cash Required for Target
Distribution 0 0 3,248 3,248 3,248 3,248 3,248 3,248 3,248
Cash Required for Indicated
Distribution 0 0 1,476 2,953 5,905 8,858 9,596 10,335 11,073
Actual Cash Distributed 0 0 1,476 2,953 3,248 3,248 3,248 3,248 3,248
Allocation to:
Common Units 0 0 1,042 2,084 2,292 2,292 2,292 2,292 2,292
SR Subordinated Units 0 0 330 659 725 725 725 725 725
Subordinated Units 0 0 75 151 166 166 166 166 166
General Partner Interest 0 0 30 59 65 65 65 65 65
Total Distribution to:
Common Units 0 0 1,042 2,084 2,292 2,292 2,292 2,292 2,292
SR Subordinated Units 0 0 330 659 725 725 725 725 725
Subordinated Units 0 0 75 151 166 166 166 166 166
General Partner Interest 0 0 30 59 65 65 65 65 65
PaineWebber Incorporated 16 of 18 For Discussion Purposes Only
Project Heat
- --------------------------------------------------------------------------------
(in thousands except per share and per unit data)
Scenario I: Base Case
STAR PRO FORMA DISTRIBUTION SCHEDULE OF ACTUAL DISTRIBUTIONS (cont'd)
Projected
Estimated Normalized ----------------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
--------- ---------- ------- ------- ------- ------- -------- -------- --------
Second Target Distribution
Cash Available 0 0 0 0 26,780 37,202 49,071 62,671 95,942
Cash Required for Target
Distribution 0 0 0 0 7,149 7,149 7,149 7,149 7,149
Cash Required for Indicated
Distribution 0 0 0 0 3,064 6,468 7,319 8,170 9,022
Actual Cash Distributed 0 0 0 0 3,064 6,468 7,149 7,149 7,149
Allocation to:
Common Units 0 0 0 0 1,875 3,959 4,376 4,376 4,376
SR Subordinated Units 0 0 0 0 593 1,252 1,384 1,384 1,384
Subordinated Units 0 0 0 0 136 287 317 317 317
General Partner Interest 0 0 0 0 61 129 143 143 143
Incentive Right 0 0 0 0 398 841 929 929 929
Incentive Right to GP Interest 0 0 0 0 96 203 224 224 224
Incentive Right to Sr. Sub Units 0 0 0 0 302 638 705 705 705
Total Distribution to:
Common Units 0 0 0 0 1,875 3,959 4,376 4,376 4,376
SR Subordinated Units 0 0 0 0 895 1,890 2,089 2,089 2,089
Subordinated Units 0 0 0 0 136 287 317 317 317
General Partner Interest 0 0 0 0 157 332 367 367 367
Third Target Distribution
Cash Available 0 0 0 0 0 0 41,922 55,522 88,793
Cash Required for Target
Distribution 0 0 0 0 0 0 16,591 16,591 16,591
Cash Required for Indicated
Distribution 0 0 0 0 0 0 193 1,157 2,122
Actual Cash Distributed 0 0 0 0 0 0 193 1,157 2,122
Allocation to:
Common Units 0 0 0 0 0 0 104 625 1,146
Sr. Subordinated Units 0 0 0 0 0 0 33 198 363
Subordinated Units 0 0 0 0 0 0 8 45 83
General Partner Interest 0 0 0 0 0 0 4 23 42
Incentive Right 0 0 0 0 0 0 44 266 488
Incentive Right to GP Interest 0 0 0 0 0 0 11 64 118
Incentive Right to Sr. Sub Units 0 0 0 0 0 0 34 202 370
Total Distribution to:
Common Units 0 0 0 0 0 0 104 625 1,146
Sr. Subordinated Units 0 0 0 0 0 0 67 400 733
Subordinated Units 0 0 0 0 0 0 8 45 83
General Partner Interest 0 0 0 0 0 0 15 87 160
Remaining Distribution
Cash Available 0 0 0 0 0 0 0 0 0
Cash Required for Indicated
Distribution 0 0 0 0 0 0 0 0 0
Actual Cash Distributed 0 0 0 0 0 0 0 0 0
Allocation to:
Common Units 0 0 0 0 0 0 0 0 0
Sr. Subordinated Units 0 0 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0 0 0
Incentive Right 0 0 0 0 0 0 0 0 0
Incentive Right to GP Interest 0 0 0 0 0 0 0 0 0
Incentive Right to Sr. Sub Units 0 0 0 0 0 0 0 0 0
Repay Indebtedness 0 0 13,284 18,774 23,717 30,734 41,729 54,364 86,671
Total Distribution to:
Common Units 0 0 0 0 0 0 0 0 0
Sr. Subordinated Units 0 0 0 0 0 0 0 0 0
Subordinated Units 0 0 0 0 0 0 0 0 0
General Partner Interest 0 0 0 0 0 0 0 0 0
PaineWebber Incorporated 17 of 18 For Discussion Purposes Only
PROJECT HEAT
================================================================================
(in thousands except per share and per unit data)
STAR GAS PRO FORMA SCHEDULE OF ACTUAL DISTRIBUTIONS (cont'd) Scenario I: Base Case
Estimated Normalized Projected
-----------------------------------------------------------------
1998 1998 1999 2000 2001 2002 2003 2004 2005
---------- ---------- -------- ------- ------- ------- ------- ------- --------
Total Distributions
- -------------------
Common Units $ 22,733 $ 22,910 $ 23,962 $ 25,004 $ 27,088 $ 29,171 $ 29,692 $ 30,213 $ 30,734
SR Subordinated Units 0 7,251 7,581 7,910 8,872 9,867 10,132 10,465 10,798
Subordinated Units 0 1,472 1,734 1,810 1,961 2,112 2,149 2,187 2,225
General Partner Interest 464 646 679 709 872 1,047 1,097 1,169 1,242
-------- ---------- -------- -------- -------- -------- -------- -------- --------
Total Distributions $ 23,197 $ 32,289 $ 32,957 $ 35,433 $ 38,792 $ 42,196 $ 43,070 $ 44,035 $ 44,999
======== ========== ======== ======== ======== ======== ======== ======== ========
Total Distributions Per Units
- -----------------------------
Common Units $ 2.18 $ 2.20 $ 2.30 $ 2.40 $ 2.60 $ 2.80 $ 2.85 $ 2.90 $ 2.95
SR Subordinated Units 0.00 2.20 2.30 2.40 2.69 2.99 3.07 3.18 3.28
Subordinated & GP Units 0.44 2.02 2.30 2.40 2.70 3.01 3.09 3.20 3.30
Total Incentive Distributions NPV
--------
To GP Interest $ 357 $ 0 $ 0 $ 0 $ 0 $ 96 $ 203 $ 235 $ 289 $ 342
To Sr. Sub Units 1,121 - - - - 302 638 739 907 1,075
-------- -------- ---------- -------- -------- -------- -------- -------- -------- --------
Sub-Total 1,478 - - - - 398 841 974 1,196 1,417
Present Value of
Terminal Value 1,189 - - - - - - - - 5,670
--------
Total $ 2,667
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