Exhibit 99.1
Star Gas Partners, L.P. Reports Fiscal 2006 Third Quarter Results
STAMFORD, Conn.--(BUSINESS WIRE)--Aug. 9, 2006--Star Gas Partners,
L.P. (the "Partnership" or "Star") (NYSE: SGU), a home energy
distributor and services provider specializing in heating oil, today
announced financial results for its fiscal 2006 third quarter, and the
nine-month period ended June 30, 2006. On December 17, 2004, the
Partnership sold its propane segment and the historical results of the
propane segment are accounted for as discontinued operations in the
Partnership's financial statements. On April 28, 2006, the Partnership
completed its previously announced recapitalization in which $57.7
million in equity was raised, $65.3 million in debt was repaid and
$26.9 million in debt was converted into common equity.
For the fiscal 2006 third quarter, Star reported a 5.6 percent
decrease in total revenues to $191.5 million, compared to total
revenues of $202.8 million in the year ago period, as a reduction in
volume of home heating oil more than offset the impact of higher
selling prices. The home heating oil volume decline was due to 22.3
percent warmer temperatures, net customer attrition and other factors.
Selling prices were higher due to the increase in the wholesale cost
of home heating oil and the Partnership's more disciplined pricing
strategy. Average wholesale home heating oil product costs increased
32.9 percent to $1.90 per gallon for the fiscal 2006 third quarter,
compared to $1.43 for the prior year period. Home heating oil volume
for the fiscal 2006 third quarter declined 30.1 percent,
year-over-year, from 65.8 million gallons to 46.0 million gallons.
For the fiscal 2006 third quarter, Star lost approximately 5,800
accounts (net), or 1.3 percent of its home heating oil customer base,
as compared to the fiscal 2005 third quarter in which Star lost 7,400
accounts (net), or 1.5 percent of its home heating oil customer base.
For the twelve months ended June 30, 2006, Star's net customer
attrition rate was 8.3 percent, which compares to 7.1 percent, 6.4
percent and 1.5 percent for fiscal 2005, fiscal 2004 and fiscal 2003,
respectively. The Partnership expects that home heating oil volume
sold for the remainder of fiscal 2006 will be less than in the
comparable period in fiscal 2005 due to net customer attrition.
Home heating oil per gallon margins for the fiscal 2006 third
quarter rose by 10.4 cents per gallon, versus the corresponding fiscal
2005 period due largely to an increase in the margins realized on
sales to price-protected customers when compared to the margins
experienced during the fiscal 2005 third quarter and the Partnership's
decision in the fourth quarter of fiscal 2005 and continuing into
fiscal 2006 to maintain reasonable profit margins on both variable and
price-protected customers in spite of competitors' aggressive pricing
tactics. Star does not expect to achieve a comparable increase in per
gallon margins for the remainder of fiscal 2006.
The service results improved by $1.3 million from a profit of $0.4
million (0.6 cents per gallon) for the fiscal 2005 third quarter, to a
$1.7 million profit (3.6 cents per gallon) for the fiscal 2006 third
quarter.
Total operating expenses (delivery, branch, general and
administrative) decreased by $3.7 million, or 6.8 percent, to $51.4
million for the fiscal 2006 third quarter, as compared to $55.1
million for the prior year's quarter. Operating expenses were
favorably impacted by an estimated $3.3 million decrease in certain
variable operating expenses related to the decline in home heating oil
volume, a reduction in marketing expenses of $0.7 million and a
decline in certain expenses incurred in the fiscal 2005 third quarter
such as $1.4 million for first year compliance with Sarbanes-Oxley and
severance costs of $0.6 million, which were not repeated during the
third quarter of fiscal 2006. Insurance expense for the fiscal 2006
quarter was higher by $3.2 million than the prior year's comparable
period largely due to the adverse adjudication of two large worker's
compensation claims.
In the fiscal 2006 third quarter, the operating loss increased by
$0.9 million to a $24.3 million loss, as compared to an operating loss
of $23.4 million for the fiscal 2005 third quarter, as the reduction
in total operating costs (including depreciation and amortization) of
$7.3 million and increase in net service profitability of $1.3 million
were more than offset by a decrease in product gross profit of $6.2
million and an increase in insurance expense of $3.2 million.
For the fiscal 2006 third quarter, interest expense decreased $3.0
million to $5.8 million, as compared to $8.8 million for the fiscal
2005 third quarter due to a lower principal amount in total debt
outstanding of approximately $148.8 million. Total debt declined due
to the recapitalization and lower working capital borrowings.
For the three months ended June 30, 2006, the net loss increased
by $6.8 million, to a $36.1 million loss, compared to a net loss of
$29.3 million for the three months ended June 30, 2005, as a reduction
in net interest expense of $3.2 million was more than offset by the
increase in the operating loss of $0.9 million, a $6.6 million net
charge recorded on the early redemption ($65.3 million) and conversion
into equity ($26.9 million) of the Partnership's 10.25% senior notes,
and a change in income taxes of $2.9 million. During the fiscal 2006
third quarter, the Partnership recorded an income tax expense of $0.5
million, as compared to a $2.4 million benefit recorded in the fiscal
2005 third quarter.
For the three months ended June 30, 2006, EBITDA loss increased
$7.8 million to $22.5 million, as compared to an EBITDA loss of $14.7
million for the three months ended June 30, 2005, as the lower volume
resulted in a decline in home heating oil gross profit of $11.4
million (of which approximately $7.1 million is weather-related), an
increase in insurance expense of $3.2 million and a $6.6 million
charge recorded for early debt redemption more than offset the impact
of 10.4 cents per gallon higher home heating oil margins ($4.8
million), a reduction in total operating expenses of $6.9 million and
an increase in service and installation profitability of $1.3 million.
EBITDA should not be considered as an alternative to net income (as an
indicator of operating performance) or as an alternative to cash flow
(as a measure of liquidity or ability to service debt obligations),
but provides additional information for evaluating the Partnership's
ability to make the Minimum Quarterly Distribution. The Partnership is
not required to accrue the Minimum Quarterly Distribution until
October 1, 2008.
Star Gas Partners Chief Executive Officer Joseph Cavanaugh,
stated, "Our fiscal 2006 third quarter results reflect the impact of
warmer than normal weather experienced in April and May 2006,
continued volatility of oil supply prices and efforts by customers to
conserve energy in a period of unprecedented high prices. On a
positive note, our 1.3 percent attrition rate for the quarter was
lower than both the 2.2 percent rate in the fiscal second quarter of
2006, as well as the 1.5 percent rate we experienced in the year-ago
period. We are now able to seek out complementary acquisitions and
have a considerably less-leveraged balance sheet than prior to the
completion of the recapitalization."
For the nine-month period ended June 30, 2006, Star achieved a 3.3
percent increase in revenues to $1,145.0 million, compared to $1,108.8
million in the corresponding prior-year period as increases in selling
prices more than offset a decline in product sales due to lower
volume.
During the first nine months of fiscal 2006, home heating oil
volume declined 93.3 million gallons, or 20.6 percent, from 453.1
million gallons to 359.7 million gallons. The home heating oil volume
decline was due to 11.6 percent warmer temperatures, net customer
attrition and other factors. For the nine months ended June 30, 2006,
Star lost 22,700 accounts (net), or 5.1 percent of its home heating
oil customer base, as compared to the nine months ended June 30, 2005
in which Star lost 19,300 accounts (net), or 3.9 percent of its home
heating oil customer base. The principal change in performance was a
reduction of 7,000 new customer gains, partially offset by 3,600 fewer
customer losses. The reduction in new customer gains can be attributed
to: (i) higher minimum profitability standards for new customers in
fiscal 2005 and fiscal 2006; (ii) a reduction in mass market
advertising spending, which attracted transient customers in the past;
(iii) continued customer price sensitivity due to high energy prices;
and (iv) increased new customer credit quality standards. We expect
that net customer attrition will continue through the balance of
fiscal 2006 and perhaps beyond.
The service results improved by $5.4 million from a loss of $10.3
million (2.3 cents per gallon) for the first nine months of fiscal
2005 to a loss of $4.9 million (1.4 cents per gallon) for the first
nine months of fiscal 2006.
Home heating oil per gallon margins for the first nine months of
fiscal 2006 increased by 13.4 cents versus the corresponding period in
fiscal 2005, due largely to the increase in margins realized on sales
to price protected accounts and an increase in the margin realized on
variable priced customers.
Total operating expenses (delivery, branch, general and
administrative) decreased by $38.9 million, or 17.7 percent, to $181.1
million for the first nine months of fiscal 2006. This decrease was
due to lower bridge and financing expenses of $10.9 million, a $6.1
million reduction in marketing expenses, a $6.1 million reduction in
legal and compliance costs, the receipt of $4.4 million in weather
insurance proceeds (which lowered operating expenses), a decrease in
certain variable operating expenses directly associated with the 20.6
percent decline in home heating oil volume (estimated to be $7.8
million), $3.8 million lower compensation expense related to
separation agreements recorded in the first nine months of fiscal 2005
with former executives of the Partnership and other expense reductions
of $4.4 million. These improvements were reduced by higher director's
and officer's liability insurance expense of $1.1 million, and $1.4
million of legal and professional expense relating to our exploring
our financial options. In the fiscal 2005 first quarter, the decline
in the unit price for senior subordinated units resulted in reversing
previously recorded compensation expenses of $2.2 million, which
lowered total operating costs in the nine months ended June 30, 2005.
For the nine months ended June 30, 2006, operating income
increased by $109.7 million to $47.9 million, as compared to an
operating loss of $61.8 million for the nine months ended June 30,
2005. This increase was due to an increase in net service and
installation profitability of $5.4 million, lower delivery, branch and
general administrative expenses of $38.9 million, lower depreciation
and amortization of $2.1 million, and the non-recurrence of a $67.0
million goodwill impairment charge recorded in the nine months ended
June 30, 2005, reduced by lower product gross profit of $3.7 million.
For the nine months ended June 30, 2006, net income decreased by
$1.0 million to $20.0 million, as compared to $21.0 million for the
nine months ended June 30, 2005, as an increase in net service and
installation profitability of $5.4 million, $38.9 million lower
operating expenses, a $7.9 million reduction in net interest expense
and a $2.1 million decline in depreciation and amortization costs were
more than offset by a $3.7 million reduction in product gross profit
and the positive impact on net income ($51.6 million in total) of
certain non-routine transactions/events occurring primarily in the
nine months ended June 30, 2005, which had a greater impact than in
the nine months ended June 30, 2006. These transactions/events include
goodwill loss impairment of $67.0 million, change in loss on
redemption of debt of $35.5 million, income (loss) attributable to
sold operations of $151.2 million and the cumulative effect of changes
in accounting principle.
EBITDA for the nine months ended June 30, 2006 increased $143.1
million to $66.1 million, as compared to an EBITDA loss of $77.0
million for the nine months ended June 30, 2005. This increase was due
to the 13.4 cents increase in home heating oil gross profit margins
($48.1 million), a reduction in net service loss of $5.4 million,
$38.9 million lower operating expenses, reduced in part by the decline
in home heating oil gross profit of $51.9 million (of which $27.0
million was weather-related). The nine-month comparison was also
favorably impacted by a change in loss on redemption of debt of $35.5
million and the non-recurrence of a $67.0 million goodwill impairment
charge recorded in the nine months ended June 30, 2005. EBITDA is a
non-GAAP financial measure (see below reconciliation) that should not
be considered as an alternative to net income (as an indicator of
operating performance) or as an alternative to cash flow (as a measure
of liquidity or ability to service debt obligations). Management
believes this information is of interest to investors as a
supplemental measure of the Partnership's operating performance and
provides additional information for evaluating the Partnership's
ability to make the Minimum Quarterly Distribution. The Partnership is
not required to accrue the Minimum Quarterly Distribution until
October 1, 2008. If the Partnership elects to commence making
distributions of available cash before October 1, 2008, minimum
quarterly distributions will start accruing at that earlier date.
REMINDER: Star Gas management will host a conference call and
webcast today at 1:00 p.m. (ET). Conference call dial-in is
800/313-6624 or 415/908-6225 (international callers). A webcast is
also available at www.star-gas.com and at www.vcall.com
Star Gas Partners, L.P., is the nation's largest retail
distributor of home heating oil. Additional information is available
by obtaining the Partnership's SEC filings and by visiting Star's
website at www.star-gas.com.
Forward Looking Information
This news release includes "forward-looking statements" which
represent the Partnership's expectations or beliefs concerning future
events that involve risks and uncertainties, including those
associated with the effect of weather conditions on our financial
performance; the price and supply of home heating oil; the consumption
patterns of our customers; our ability to obtain satisfactory gross
profit margins; our ability to obtain new customers and retain
existing customers; our ability to effect strategic acquisitions or
redeploy underperforming assets; the impact of litigation; the ongoing
impact of the business process redesign project at the heating oil
segment and our ability to address issues related to that project;
natural gas conversions; future union relations and the outcome of
current and future union negotiations; the impact of current and
future environmental, health and safety regulations; customer
creditworthiness; and marketing plans. All statements other than
statements of historical facts included in this news release are
forward-looking statements. Although the Partnership believes that the
expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove
to have been correct. Important factors that could cause actual
results to differ materially from the Partnership's expectations
("Cautionary Statements") are disclosed in this news release and in
the Partnership's Annual Report on Form 10-K/A for the year ended
September 30, 2005 and its Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2006, including without limitation and
in conjunction with the forward-looking statements included in this
news release. All subsequent written and oral forward-looking
statements attributable to the Partnership or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary
Statements. Unless otherwise required by law, the Partnership
undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise after the date of this news release.
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) Sept. 30, June 30,
2005 2006
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 99,148 $ 66,429
Receivables, net of allowances of $8,433 and
$8,142, respectively 89,703 111,478
Inventories 52,461 66,717
Prepaid expenses and other current assets 70,120 48,176
----------- -----------
Total current assets 311,432 292,800
----------- -----------
Property and equipment, net 50,022 42,939
Long-term portion of accounts receivables 3,788 3,831
Goodwill 166,522 166,522
Intangibles, net 82,345 66,000
Deferred charges and other assets, net 15,152 11,561
Long-term assets held for sale - 1,091
----------- -----------
Total Assets $ 629,261 $ 584,744
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable $ 19,807 $ 16,007
Working capital facility borrowings 6,562 -
Current maturities of long-term debt 796 97
Accrued expenses 56,553 67,923
Unearned service contract revenue 36,602 36,254
Customer credit balances 65,287 39,596
----------- -----------
Total current liabilities 185,607 159,877
----------- -----------
Long-term debt 267,417 174,155
Other long-term liabilities 31,129 31,535
Partners' capital (deficit)
Common unitholders 144,312 233,972
Subordinated unitholders (8,930) -
General partner (3,936) (101)
Accumulated other comprehensive income (loss) 13,662 (14,694)
----------- -----------
Total Partners' capital 145,108 219,177
----------- -----------
Total Liabilities and Partners' Capital $ 629,261 $ 584,744
=========== ===========
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except
per unit data) Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- -----------------------
2005 2006 2005 2006
----------- ----------- ----------- -----------
Sales:
Product $ 157,870 $ 148,742 $ 965,858 $1,003,408
Installations and
service 44,898 42,772 142,921 141,607
---------- ---------- ---------- ----------
Total sales 202,768 191,514 1,108,779 1,145,015
Cost and expenses:
Cost of product 117,803 114,900 703,448 744,741
Cost of installations
and service 44,522 41,112 153,231 146,468
Delivery and branch
expenses 47,285 46,543 183,408 163,458
Depreciation and
amortization
expenses 8,773 8,436 26,916 24,846
General and
administrative
expenses 7,833 4,853 36,593 17,647
Goodwill impairment
loss - - 67,000 -
---------- ---------- ---------- ----------
Operating income
(loss) (23,448) (24,330) (61,817) 47,855
Interest expense (8,777) (5,787) (28,723) (21,285)
Interest income 1,531 1,704 2,966 3,411
Amortization of debt
issuance costs (623) (595) (1,928) (1,868)
Loss on redemption of
debt - (6,603) (42,082) (6,603)
---------- ---------- ---------- ----------
Income (loss) from
continuing
operations before
income taxes (31,317) (35,611) (131,584) 21,510
Income tax expense
(benefit) (2,400) 468 (1,400) 1,158
---------- ---------- ---------- ----------
Income (loss) from
continuing
operations (28,917) (36,079) (130,184) 20,352
Loss from discontinued
operations, net of
taxes - - (4,552) -
Gain (loss) on sale of
discontined
operations, net of
taxes (404) - 155,760 -
---------- ---------- ---------- ----------
Income (loss) before
cumulative effect of
changes in accounting
principles (29,321) (36,079) 21,024 20,352
Cumulative effect of
changes in accounting
principles- change
in inventory pricing
method - - - (344)
---------- ---------- ---------- ----------
Net income (loss) $ (29,321) $ (36,079) $ 21,024 $ 20,008
========== ========== ========== ==========
General Partner's
interest in net
income (loss) $ (265) $ (200) $ 189 $ 305
---------- ---------- ---------- ----------
Limited Partners'
interest in net
income (loss) $ (29,056) $ (35,879) $ 20,835 $ 19,703
========== ========== ========== ==========
Basic and Diluted
Income (loss) per
Limited Partner Unit:
Continuing operations $ (0.80) $ (0.56) $ (3.60) $ 0.44
Discontinued
operations - - (0.13) -
Gain (loss) on sale of
discontinued
operations (0.01) - 4.31 -
---------- ---------- ---------- ----------
Income (loss) before
cumulative effect of
changes in
accounting
principles (0.81) (0.56) 0.58 0.44
Cumulative effect of
changes in
accounting
principles- change
in inventory pricing
method - - - (0.01)
---------- ---------- ---------- ----------
Net income (loss) $ (0.81) $ (0.56) $ 0.58 $ 0.43
========== ========== ========== ==========
----------- ----------- ---------- -----------
Weighted average
number of Limited
Partner units
outstanding 35,857 63,944 35,799 45,250
========== ========== ========== ==========
SUPPLEMENTAL INFORMATION
------------------------
Earnings (loss) before interest, taxes, depreciation and
amortization from continuing operations (EBITDA)
The Partnership uses EBITDA as a measure of liquidity and it is being
included because the Partnership believes that it provides investors
and industry analysts with additional information to evaluate the
Partnership's ability to pay quarterly distributions. EBITDA is not a
recognized term under generally accepted accounting principles
("GAAP") and should not be considered as an alternative to net
income/(loss) or net cash provided by operating activities determined
in accordance with GAAP. Because EBITDA as determined by the
Partnership excludes some, but not all of the items that affect net
income/(loss), it may not be comparable to EBITDA or similarly titled
measures used by other companies. The following tables set forth (i)
the calculation of EBITDA and (ii) a reconciliation of EBITDA, as so
calculated, to cash provided by operating activities.
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF EBITDA
Three Months Ended
June 30,
---------------------
(in thousands) 2005 2006
--------- ---------
Income (loss) from continuing operations $ (28,917) $ (36,079)
Plus:
Income tax expense (benefit) (2,400) 468
Amortization of debt issuance costs 623 595
Interest expense, net 7,246 4,083
Depreciation and amortization expense 8,773 8,436
--------- ---------
EBITDA $ (14,675) $ (22,497)(a)
Add/(subtract)
Income tax expense 2,400 (468)
Interest expense, net (7,246) (4,083)
Provision for losses on accounts receivable 1,824 1,851
Unrealized loss on derivative instruments (4,494) 780
Loss on redemption of debt - 6,603
(Gain) loss on sales of fixed assets, net (78) (353)
Change in operating assets and liabilities 119,555 90,573
--------- ---------
Net cash provided by operating activities $ 97,286 $ 72,406
========= =========
(a) Includes a net non-cash charge of $6.6 million related to early
debt redemption.
Three Months Ended
June 30,
--------------------
2005 2006
--------- ---------
Home heating oil gallons sold (millions) 65.8 46.0
SUPPLEMENTAL INFORMATION
------------------------
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF EBITDA
Nine Months Ended
June 30,
----------------------------
(in thousands) 2005 2006
----------- ----------
Income (loss) from continuing operations $(130,184) $20,352
Plus:
Income tax expense (benefit) (1,400) 1,158
Amortization of debt issuance costs 1,928 1,868
Interest expense, net 25,757 17,874
Depreciation and amortization expense 26,916 24,846
----------- ----------
EBITDA $(76,983)(a) $66,098 (b)
Add/(subtract)
Income tax expense 1,400 (1,158)
Interest expense, net (25,757) (17,874)
Unit compensation expense (2,104) -
Provision for losses on accounts
receivable 6,231 6,310
Unrealized (gain) loss on derivative
instruments (1,322) 929
Loss on redemption of debt 42,082 6,603
(Gain) loss on sales of fixed assets,
net (20) (804)
Goodwill impairment loss 67,000 -
Change in operating assets and
liabilities (91,054) (67,948)
---------- ----------
Net cash used in operating activities $(80,527) $(7,844)
========== ==========
(a) Includes $42.1 million related to early debt redemption and
non-cash goodwill impairment charge of $67.0 million.
(b) Includes a net non-cash charge of $6.6 million related to early
debt redemption.
Nine Months Ended
June 30,
------------------------
2005 2006
---------- ----------
Home heating oil gallons sold (millions) 453.1 359.7
CONTACT: Star Gas Partners
Investor Relations
203-328-7310
or
Jaffoni & Collins Incorporated
Robert Rinderman / Steven Hecht, 212-835-8500
SGU@jcir.com