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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of report (Date of earliest event reported) May 10, 2006
STAR GAS PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 011-14129 06-1437793
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
2187 Atlantic Street, Stamford, CT 06902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 328-7310
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On May 9, 2006, Star Gas Partners, L.P., a Delaware partnership (the
"Partnership"), issued a press release announcing its financial results for its
fiscal second quarter ending March 31, 2006. A copy of the press release is
furnished within this report as Exhibit 99.1.
The information in this report is being furnished, and is not deemed as "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
and shall not be deemed incorporated by reference in any filings under the
Securities Act of 1933, as amended, unless specifically stated so therein.
ITEM 7.01. REGULATION FD DISCLOSURE
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit 99.1 A copy of the Star Gas Partners, L P. Press Release dated
May 9, 2006
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STAR GAS PARTNERS, L.P.
By: Kestrel Heat, LLC (General Partner)
By: /s/ Richard F. Ambury
------------------------------------------
Name: Richard F. Ambury
Title: Chief Financial Officer
Principal Financial & Accounting Officer
Date: May 10, 2006
Exhibit 99.1
Star Gas Partners, L.P. Reports Fiscal 2006 Second Quarter Results
STAMFORD, Conn.--(BUSINESS WIRE)--May 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 second quarter, and
the six-month period ended March 31, 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.
For the fiscal 2006 second quarter, Star reported a 2.9 percent
decrease in total revenues to $539.1 million, compared to total
revenues of $555.3 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 16.2
percent warmer temperatures, net customer attrition and other factors
such as delivery scheduling and conservation. Selling prices were
higher due to the increase in the wholesale cost of home heating oil
and the Partnership seeking higher per gallon margins. Average
wholesale home heating oil product costs increased 36.5 percent to
$1.83 per gallon for the fiscal 2006 second quarter, compared to $1.34
for the prior year period. Home heating oil volume for the fiscal 2006
second quarter declined 25.5 percent, year-over-year, from 245.0
million gallons to 182.5 million gallons.
For the fiscal 2006 second quarter, Star lost approximately 9,700
accounts (net), or 2.2 percent of its home heating oil customer base,
as compared to the fiscal 2005 second quarter in which Star lost 9,900
accounts (net), or 2.1 percent of its home heating oil customer base.
For the twelve months ended March 31, 2006, Star's net customer
attrition rate was 8.5 percent, which compares to 7.1 percent, 6.4
percent and 1.5 percent for fiscal 2005, fiscal 2004 and fiscal 2003,
respectively. Star's volume for the fiscal 2006 second quarter was
positively impacted by four to five million gallons due to delivery
scheduling as certain deliveries normally scheduled for fiscal third
quarter were made in March 2006. 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 warmer weather,
net customer attrition, conservation and other factors.
Home heating oil per gallon margins for the fiscal 2006 second
quarter rose by 9.3 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 low margins
experienced during the fiscal 2005 second 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 is not expecting that the 9.3 cent
per gallon increase in per gallon margins will continue for the
remainder of fiscal 2006. The Partnership anticipates that margins
realized for the balance of fiscal 2006 will be similar to the levels
achieved for the last half of fiscal 2005. Since March 31, 2006, home
heating oil prices have escalated and continue to be volatile.
The service results improved by $1.6 million from a loss of $5.9
million (2.4 cents per gallon) for the fiscal 2005 second quarter, to
a $4.3 million loss (2.4 cents per gallon) on the lower volume for the
fiscal 2006 second quarter.
Total operating expenses (delivery, branch, general and
administrative) decreased by $19.6 million, or 23.5 percent, to $63.9
million for the fiscal 2006 second quarter, as compared to $83.6
million for the prior year's quarter. This decrease was due to a
reduction in marketing expenses of $1.7 million, staff reductions of
$0.5 million, a decrease in certain variable operating expenses
directly associated with the 25.5 percent decline in home heating oil
volume estimated to be $7.1 million, lower compensation expense as a
$3.1 million expense was recorded during the fiscal 2005 second
quarter resulting from a separation agreement with the former CEO of
the Partnership, and the receipt during the fiscal 2006 second quarter
of $4.4 million in weather insurance proceeds. In addition, during the
fiscal 2005 second quarter, the Partnership incurred legal and
professional expenses of $2.8 million for first year compliance with
Sarbanes-Oxley and for defending several purported class action suits
that were not repeated during the fiscal 2006 second quarter.
In the fiscal 2006 second quarter, operating income increased by
$69.1 million to $51.7 million, as compared to an operating loss of
$17.3 million for the fiscal 2005 second quarter. This increase was
principally due to the $67.0 million non-cash goodwill impairment
charge recorded during the three months ended March 31, 2005.
Star's income (loss) from continuing operations during the fiscal
2006 second quarter increased $70.2 million to $43.6 million, as
compared to a loss from continuing operations of $26.6 million during
the fiscal 2005 second quarter. This increase was due to the $69.1
million increase in operating income and lower net interest expense of
$0.9 million, and lower taxes of $0.2 million.
For the three months ended March 31, 2006, net income increased by
$67.7 million, to $43.6 million, as compared to a net loss of $24.1
million for the three months ended March 31, 2005. The increase in net
income was $2.5 million less than the change in income (loss) from
continuing operations as net income for the 2005 second fiscal quarter
included a $2.5 million adjustment to the gains on the sale of
discontinued operations.
For the three months ended March 31, 2006, EBITDA (Income (loss)
from Continuing Operations Before Interest, Taxes, Depreciation and
Amortization) increased $68.0 million to $59.7 million, as compared to
an EBITDA loss of $8.3 million for the three months ended March 31,
2005, primarily due to a $67.0 million non-cash goodwill impairment
charge recorded during the three months ended March 31, 2005.
Exclusive of the $67.0 million non-cash impairment charge, EBITDA
increased $1.0 million as the impact of 16.2 percent warmer
temperatures and 8.5 percent net customer attrition was reduced by the
impact of 9.3 cents per gallon higher home heating oil margins and a
reduction in total operating expenses of $19.6 million and lower
depreciation and amortization of $1.1 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 make the Minimum Quarterly Distribution until October 1,
2008.
Star Gas Partners Chief Executive Officer Joseph Cavanaugh,
stated, "With the strategic recapitalization now behind us, we are
today a substantially better capitalized and less-leveraged
organization. Accordingly, we plan to once again commence reviewing
potential acquisition candidates and will be prudent about adhering to
strict criteria when evaluating them. We also continue to focus on
enhancing our overall operating efficiency."
Mr. Cavanaugh, continued, "Pursuant to our localization initiative
and enhancing the Partnership's focus on our operations, in the Petro
districts we are moving forward with answering all customer calls
locally in five districts and routing a portion of calls in other
districts to being handled locally. Currently, approximately 30% of
customer calls are answered locally and we plan to continue raising
this percentage going forward."
For the six-month period ended March 31, 2006, Star achieved a 5.2
percent increase in revenues to $953.5 million, compared to $906.0
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 half of fiscal 2006, home heating oil volume
declined 73.5 million gallons, or 19.0 percent, from 387.3 million
gallons to 313.8 million gallons, compared to the prior-year period.
The home heating oil volume decline was due to 10.2 percent warmer
temperatures, net customer attrition of 8.5 percent for the twelve
months ended March 31, 2006 and other factors such as delivery
scheduling and conservation. Star's volume for the first half of
fiscal 2006 was positively impacted by 4 to 5 million gallons due to
delivery scheduling. For the six months ended March 31, 2006, Star
lost 16,900 accounts (net), or 3.7 percent of its home heating oil
customer base, as compared to the six months ended March 31, 2005 in
which Star lost 11,900 accounts (net), or 2.5 percent of its home
heating oil customer base. The principal change in performance was a
reduction of 6,000 new customer gains, partially offset by 1,000 fewer
customer losses. The reduction in new customer gains can be attributed
to: (i) higher minimum profitability standards for new customers in
fiscal 2005; (ii) a reduction in mass market advertising spending,
which attracted transient customers in fiscal 2004; (iii) increased
customer price sensitivity due to high energy prices; and (iv)
increased new customer credit quality standards.
Home heating oil per gallon margins for the first half of fiscal
2006 increased by 13.9 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 $35.2 million, or 21.3 percent, to $129.7
million for the first half of fiscal 2006. This decrease was due to
lower bridge and financing expenses of $10.9 million, a $5.5 million
reduction in marketing expenses, lower legal and compliance costs of
$4.4 million, the receipt of weather insurance proceeds of $4.4
million (which lowered operating expenses), staff reductions of $1.8
million, a decrease in certain variable operating expenses directly
associated with the 19.0 percent decline in home heating oil volume
estimated to be $9.4 million, and $3.1 million in lower compensation
expense related to a separation agreement recorded in the first half
of fiscal 2005 with the former CEO. These improvements were reduced by
higher director's and officer's liability insurance expense of $1.2
million, $1.3 million of legal and professional expense relating to
the Kestrel/recapitalization transaction, and a $2.1 million increase
in compensation expense relating to unit appreciation rights. (In the
fiscal 2005 first quarter, the decline in the unit price for senior
subordinated units resulted in reversing previously recorded expenses
of $2.1 million.)
For the six months ended March 31, 2006, operating income
increased by $110.6 million to $72.2 million, as compared to an
operating loss of $38.4 million for the six months ended March 31,
2005. This change was due to an increase in product gross profit
margins of $2.5 million, improvements in service and installation
profitability of $4.2 million, a $35.2 million decline in operating
expenses, $1.7 million lower depreciation and amortization expense and
the non-recurrence during the six months ended March 31, 2006 of a
$67.0 million goodwill impairment charge recorded in the six months
ended March 31, 2005.
Net income for the 2006 six-month period increased by $5.7 million
to $56.1 million, versus $50.3 for the 2005 six-month period, due to
the $110.6 million increase in operating income, the non-recurrence of
a $42.1 million loss on redemption of debt recorded in the first half
of fiscal 2005, lower net interest expense of $4.7 million, and a $4.6
million reduction in the loss from discontinued operations, more than
offset by a $156.2 million gain on the sales of discontinued
operations.
EBITDA for the six months ended March 31, 2006 increased $150.9
million to $88.6 million. This change was due to an increase in home
heating oil gross profit of $2.5 million, an improvement in net
service profitability of $4.2 million, and a $35.2 million reduction
in total operating expenses. The six-month comparison was also
favorably impacted by the non-recurrence during the six months ended
March 31, 2006 of a $42.1 million loss on redemption of debt and a
$67.0 million goodwill impairment charge recorded in the six months
ended March 31, 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 make the Minimum
Quarterly Distribution until October 1, 2008.
REMINDER: Star Gas management will host a conference call and
webcast today at 1:00 p.m. (ET). Conference call dial-in is
888/939-6307 or 415/908-6228 (international callers). A webcast is
also available at www.star-gas.com and at www.vcall.com
Star Gas Partners, L.P., is the nation's largest retail
distributor of home heating oil. Additional information is available
by obtaining the Partnership's SEC filings and by visiting Star's
website at www.star-gas.com.
Forward Looking Information
This news release includes "forward-looking statements" which
represent the Partnership's expectations or beliefs concerning future
events that involve risks and uncertainties, including those
associated with the effect of weather conditions on our financial
performance; anticipated proceeds from weather insurance; the price
and supply of home heating oil; the consumption patterns of our
customers; our ability to obtain satisfactory gross profit margins;
our ability to obtain new customers and retain existing customers; our
ability to effect strategic acquisitions or redeploy underperforming
assets; the impact of litigation; the ongoing impact of the business
process redesign project at the heating oil segment and our ability to
address issues related to that project; natural gas conversions;
future union relations and the outcome of current and future union
negotiations; the impact of current and future environmental, health
and safety regulations; customer creditworthiness; and marketing
plans. All statements other than statements of historical facts
included in this news release are forward-looking statements. Although
the Partnership believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance
that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the
Partnership's expectations ("Cautionary Statements") are disclosed in
this news release and in the Partnership's Annual Report on Form
10-K/A for the year ended September 30, 2005 and its Quarterly Report
on Form 10-Q/A for the fiscal quarter ended March 31, 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, March 31,
2005 2006
--------- ----------
ASSETS
Current assets
Cash and cash equivalents $ 99,148 $ 9,198
Receivables, net of allowances of $5,622 and
$8,859, respectively 89,703 211,988
Inventories 52,461 43,776
Prepaid expenses and other current assets 70,120 47,058
Current assets held for sale - 2,023
--------- ----------
Total current assets 311,432 314,043
--------- ----------
Property and equipment, net 50,022 44,605
Long-term portion of accounts receivables 3,788 3,999
Goodwill 166,522 166,522
Intangibles, net 82,345 68,323
Deferred charges and other assets, net 15,152 14,036
Long-term assets held for sale - 5,630
--------- ----------
Total Assets $629,261 $ 617,158
========= ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable $ 19,780 $ 17,421
Working capital facility borrowings 6,562 -
Current maturities of long-term debt 796 94
Accrued expenses 56,580 63,626
Unearned service contract revenue 36,602 36,500
Customer credit balances 65,287 26,067
Current liabilities associated with assets held
for sale - 3,754
--------- ----------
Total current liabilities 185,607 147,462
Long-term debt 267,417 267,215
Other long-term liabilities 31,129 31,645
Partners' capital (deficit)
Common unitholders 144,312 194,109
Subordinated unitholders (8,930) (3,145)
General partner (3,936) (3,431)
Accumulated other comprehensive income (loss) 13,662 (16,697)
--------- ----------
Total Partners' capital 145,108 170,836
--------- ----------
Total Liabilities and Partners' Capital $629,261 $ 617,158
========= ==========
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per Three Months Ended Six Months Ended
unit data)
March 31, March 31,
------------------- --------------------
2005 2006 2005 2006
--------- --------- ---------- ---------
Sales:
Product $510,869 $495,797 $ 807,988 $854,666
Installations and service 44,448 43,324 98,023 98,835
--------- --------- ---------- ---------
Total sales 555,317 539,121 906,011 953,501
Cost and expenses:
Cost of product 362,741 367,870 585,644 629,841
Cost of installations and
service 50,335 47,661 108,710 105,356
Delivery and branch
expenses 70,643 57,917 136,123 116,915
Depreciation and
amortization expenses 9,021 7,924 18,143 16,410
General and administrative
expenses 12,918 6,001 28,760 12,794
Goodwill impairment loss 67,000 - 67,000 -
--------- --------- ---------- ---------
Operating income (loss) (17,341) 51,748 (38,369) 72,185
Interest expense (9,071) (7,958) (19,946) (15,498)
Interest income 1,052 849 1,435 1,707
Amortization of debt issuance
costs (590) (642) (1,305) (1,273)
Loss on redemption of debt - - (42,082) -
--------- --------- ---------- ---------
Income (loss) from
continuing operations
before income taxes (25,950) 43,997 (100,267) 57,121
Income tax expense 669 440 1,000 690
--------- --------- ---------- ---------
Income (loss) from
continuing operations, (26,619) 43,557 (101,267) 56,431
Income (loss) from
discontinued operations, net
of taxes - - (4,552) -
Gains on sale of discontinued
operations, net of taxes 2,520 - 156,164 -
--------- --------- ---------- ---------
Income (loss) before
cumulative effect of changes
in accounting principles (24,099) 43,557 50,345 56,431
Cumulative effect of changes
in accounting principles-
change in inventory pricing
method - - - (344)
--------- --------- ---------- ---------
Net income (loss) $(24,099) $ 43,557 $ 50,345 $ 56,087
========= ========= ========== =========
General Partner's interest in
net income (loss) $ (218) $ 392 $ 454 $ 505
--------- --------- ---------- ---------
Limited Partners' interest in
net income (loss) $(23,881) $ 43,165 $ 49,891 $ 55,582
========= ========= ========== =========
Basic and Diluted Income
(Loss) per Limited Partner
Unit:
Continuing operations $ (0.74) $ 1.20 $ (2.81) $ 1.55
Discontinued operations - - (0.13) -
Gain on sale of discontinued
operations 0.07 - 4.33 -
--------- --------- ---------- ---------
Income (loss) before
cumulative effect of
changes in accounting
principles (0.67) 1.20 1.39 1.55
Cumulative effect of
changes in accounting
principles-change in
inventory pricing method - - - (0.01)
--------- --------- ---------- ---------
Net income (loss) $ (0.67) $ 1.20 $ 1.39 $ 1.54
========= ========= ========== =========
--------- --------- ---------- ---------
Weighted average number of
Limited Partner units
outstanding 35,783 35,903 35,770 35,903
========= ========= ========== =========
SUPPLEMENTAL INFORMATION
Earnings (loss) before interest, taxes, depreciation and
amortization from continuing operations (EBITDA)
The Partnership uses EBITDA as a measure of liquidity and it is
being included because the Partnership believes that it provides
investors and industry analysts with additional information to
evaluate the Partnership's ability to pay quarterly distributions.
EBITDA is not a recognized term under generally accepted accounting
principles ("GAAP") and should not be considered as an alternative to
net income/(loss) or net cash provided by operating activities
determined in accordance with GAAP. Because EBITDA as determined by
the Partnership excludes some, but not all of the items that affect
net income/(loss), it may not be comparable to EBITDA or similarly
titled measures used by other companies. The following tables set
forth (i) the calculation of EBITDA and (ii) a reconciliation of
EBITDA, as so calculated, to cash provided by operating activities.
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF EBITDA
Three Months Ended
March 31,
----------------------
(in thousands) 2005 2006
----------- ----------
Income (loss) from continuing operations $ (26,619) $ 43,557
Plus:
Income tax expense 669 440
Amortization of debt issuance costs 590 642
Interest expense, net 8,019 7,109
Depreciation and amortization expense 9,021 7,924
----------- ----------
EBITDA $(8,320)(a) $ 59,672
Add/(subtract)
Income tax expense (669) (440)
Interest expense, net (8,019) (7,109)
Unit compensation expense (10) -
Provision for losses on accounts receivable 2,686 2,482
Unrealized loss on derivative instruments (769) (940)
(Gain) loss on sales of fixed assets, net 131 (878)
Goodwill impairment loss 67,000 -
Change in operating assets and liabilities (77,948) (20,589)
----------- ----------
Net cash used in operating
activities ($25,918) ($32,198)
=========== ==========
(a) Includes non-cash goodwill impairment charge of $67.0 million.
Three Months Ended
March 31,
---------------------
2005 2006
----------- ----------
Home heating oil gallons sold (millions) 245.0 182.5
SUPPLEMENTAL INFORMATION
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF EBITDA
Six Months Ended
March 31,
-----------------------
(in thousands) 2005 2006
------------ ----------
Income (loss) from continuing operations $ (101,267) $ 56,431
Plus:
Income tax expense 1,000 690
Amortization of debt issuance costs 1,305 1,273
Interest expense, net 18,511 13,791
Depreciation and amortization expense 18,143 16,410
----------- ---------
EBITDA $(62,308)(a) $ 88,595
Add/(subtract)
Income tax expense (1,000) (690)
Interest expense, net (18,511) (13,791)
Unit compensation expense (2,104) -
Provision for losses on accounts
receivable 4,407 4,459
Unrealized loss on derivative instruments 3,172 149
Loss on redemption of debt 42,082 -
(Gain) loss on sales of fixed assets, net 58 (451)
Goodwill impairment loss 67,000 -
Change in operating assets and liabilities (210,609) (158,521)
----------- ---------
Net cash used in operating
activities ($177,813) ($80,250)
=========== =========
(a) Includes $42.1 million related to early debt redemption and
non-cash goodwill impairment charge of $67.0 million.
Six Months Ended
March 31,
-----------------------
2005 2006
------------ ---------
Home heating oil gallons sold (millions) 387.3 313.8
CONTACT: Star Gas Partners
Investor Relations
203-328-7310
or
Jaffoni & Collins Incorporated
Robert Rinderman / Steven Hecht, 212-835-8500
SGU@jcir.com