Star Group Partners, L.P.

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Star Gas Partners, L.P. Reports Fiscal 2008 Second Quarter Results

STAMFORD, Conn., May 07, 2008 (BUSINESS WIRE) -- Star Gas Partners, L.P. (the "Partnership" or "Star") (NYSE: SGU), a home energy distributor and services provider specializing in heating oil, today announced financial results for its fiscal 2008 second quarter and the six-month period ended March 31, 2008.

Three months ended March 31, 2008, compared to three months ended March 31, 2007

The Partnership reported a 15.3 percent increase in total revenue to $665.3 million, as an increase in home heating oil selling prices was reduced by a decline in home heating oil volume. Home heating oil volume declined to 169.4 million gallons, as the additional volume provided by acquisitions was more than offset by the effects of warmer temperatures, net customer attrition, conservation and other factors.

Home heating oil per gallon margins increased slightly as product costs reached new highs on 13 occasions during the second quarter of fiscal 2008.

Operating income decreased by $33.7 million to $49.1 million, as a decrease in product gross profit of $19.2 million and an unfavorable change in the fair value of derivatives of $20.3 million was reduced by lower operating costs (including depreciation, amortization and net service) of $5.8 million.

Net income declined by $33.3 million to $41.6 million.

Adjusted EBITDA decreased by $13.9 million to $57.8 million, as the additional EBITDA provided from acquisitions was more than offset by the reduction in EBITDA attributable to the decline in home heating oil volume. Adjusted EBITDA is a non-GAAP financial measure (see below reconciliation) that should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations), but provides additional information for evaluating the Partnership's ability to make the Minimum Quarterly Distribution. The Partnership is not required to make the Minimum Quarterly Distribution until February 2009, for the quarter ending December 31, 2008.

Star Gas Partners Chief Executive Officer, Daniel P. Donovan, stated, "Home heating oil price records were set and reset 28 times during the first and second quarters of our fiscal year. We have experienced similar conditions in the past and, predictably, customers react by turning down the thermostat and seeking lower prices. There is always a lower price offer in the market and our employees are tasked with re-selling our customers on the value of the service we offer and, of course, responding appropriately to their price concerns.

"This is hard work and we are very proud of the job they have been doing. We have many competitors in each of our markets with most less than one percent our size. Lacking the resources to replace lost customers by acquiring other heating oil businesses, many of these smaller distributors are forced to use economically unsustainable price offers to retain or acquire new customers in times of market stress. We believe that the business retained or acquired in this way is of marginal value. Our preferred choice has been to fight as hard as we sensibly can through internal marketing efforts. We intend to continue pursuing an active acquisition program as another means of obtaining new accounts. Reflective of the market stress described above, our list of active acquisition prospects is longer than it has ever been. We will pursue the best of these opportunities aggressively. Our strong working capital position leaves us well prepared to do so," concluded Mr. Donovan.

Six months ended March 31, 2008, compared to six month ended March 31, 2007

The Partnership reported a 23.4 percent increase in total revenue to $1.1 billion, as an increase in home heating oil selling prices was reduced by a decline in home heating oil volume. Home heating oil volume declined to 282.5 million gallons, as the additional volume provided by acquisitions and slightly colder temperatures was more than offset by the effects of net customer attrition, conservation and other factors.

Home heating oil margins were lower by approximately 1 cent per gallon.

During the first half of fiscal 2007, the Partnership recorded a benefit of $4.3 million under its weather insurance contract. The Partnership did not record any benefit under its weather insurance contract in fiscal 2008.

Operating income decreased by $12.3 million to $79.2 million, as a favorable change in the fair value of derivative instruments of $3.8 million was more than offset by an increase in total operating expenses (including depreciation, amortization and net service) of $4.5 million and a reduction in product gross profit of $11.6 million.

Net income declined by $12.9 million to $66.7 million.

Adjusted EBITDA decreased by $17.0 million to $77.1 million, as the additional EBITDA provided from acquisitions was more than offset by the reduction in EBITDA attributable to the impacts of the decline in home heating oil volume, lower per gallon margins and lower weather insurance benefits.

REMINDER: Star Gas management will host a free webcast open to the general public and a conference call on May 8, 2008 at 11:00 a.m. (ET). The webcast is available at http://www.star-gas.com/MediaList.cfm. The conference call dial-in is 706/634-8769.

Star Gas Partners, L.P., is the nation's largest retail distributor of home heating oil. Additional information is available by obtaining the Partnership's SEC filings at www.sec.gov and by visiting Star's website at www.star-gas.com where unitholders may request a hard copy of Star's complete audited financial statements free of charge.

Forward Looking Information

This news release includes "forward-looking statements" which represent the Partnership's expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of weather conditions on our financial performance; the price and supply of home heating oil; the consumption patterns of our customers; our ability to obtain satisfactory gross profit margins; our ability to obtain new customers and retain existing customers; our ability to make strategic acquisitions; the impact of litigation; the continuing residual impact of the business process redesign project and our ability to address issues related to that project; our ability to contract for our current and future supply needs; natural gas conversions; future union relations and the outcome of current and future union negotiations; the impact of future environmental, health and safety regulations; the ability to attract and retain employees; customer creditworthiness; counterparty creditworthiness; marketing plans; and general economic conditions. All statements other than statements of historical facts included in this news release are forward-looking statements. Without limiting the foregoing, the words "believe," "anticipate," "plan," "expect," "seek," "estimate" and similar expressions are intended to identify forward-looking statements. Although the Partnership believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct and actual results may differ materially from those projected as a result of certain risks and uncertainties. Important factors that could cause actual results to differ materially from the Partnership's expectations ("Cautionary Statements") are disclosed in this news release and in the Partnership's Annual Report on Form 10-K for the year ended September 30, 2007 and its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2008, including without limitation and in conjunction with the forward-looking statements included in this news release. All subsequent written and oral forward-looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. Unless otherwise required by law, the Partnership undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this news release.

               STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS

                                             March 31,   September 30,
(in thousands)                                 2008          2007
------------------------------------------ ------------- -------------
                                            (unaudited)
ASSETS
Current assets
   Cash and cash equivalents                $    13,624   $   112,886
   Receivables, net of allowance of
    $12,255 and $7,645, respectively            265,472        78,923
   Inventories                                   64,473        85,968
   Fair asset value of derivative
    instruments                                  22,188        14,510
   Prepaid expenses and other current
    assets                                       37,220        28,216
                                           ------------- -------------
    Total current assets                        402,977       320,503
                                           ------------- -------------

Property and equipment, net                      39,404        41,721
Long-term portion of accounts receivables           956         1,362
Goodwill                                        181,524       181,496
Intangibles, net                                 38,952        48,468
Deferred charges and other assets, net            7,314         8,554
                                           ------------- -------------
   Total assets                             $   671,127   $   602,104
                                           ============= =============

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
   Accounts payable                         $    21,888   $    18,797
   Revolving credit facility borrowings          48,016             -
   Fair liability value of derivative
    instruments                                       -         5,312
   Accrued expenses and other current
    liabilities                                  68,671        65,444
   Unearned service contract revenue             40,219        37,219
   Customer credit balances                      21,570        71,109
                                           ------------- -------------
     Total current liabilities                  200,364       197,881
                                           ------------- -------------

Long-term debt                                  173,848       173,941
Other long-term liabilities                      13,439        13,951

Partners' capital
   Common unitholders                           299,264       232,895
   General partner                                  156          (129)
   Accumulated other comprehensive loss         (15,944)      (16,435)
                                           ------------- -------------
     Total partners' capital                    283,476       216,331
                                           ------------- -------------
   Total liabilities and partners' capital  $   671,127   $   602,104
                                           ============= =============

               STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                             Three Months Ended    Six Months Ended
                                  March 31,            March 31,
                             ------------------- ---------------------
(in thousands, except per
 unit data - unaudited)        2008      2007       2008       2007
---------------------------- --------- --------- ----------- ---------

Sales:
  Product                    $620,916  $534,856  $1,021,956  $815,258
  Installations and service    44,370    42,068      97,274    91,910
                             --------- --------- ----------- ---------
    Total sales               665,286   576,924   1,119,230   907,168
Cost and expenses:
  Cost of product             491,188   385,922     810,446   592,158
  Cost of installations and
   service                     45,288    44,384      97,862    94,858
  (Increase) decrease in the
   fair value of derivative
   instruments                  1,813   (18,462)    (15,940)  (12,147)
  Delivery and branch
   expenses                    66,802    68,652     124,754   115,146
  Depreciation and
   amortization expenses        6,862     7,316      13,870    14,688
  General and administrative
   expenses                     4,193     6,260       9,039    10,948
                             --------- --------- ----------- ---------
    Operating income           49,140    82,852      79,199    91,517
Interest expense               (5,662)   (5,136)    (10,721)  (10,244)
Interest income                 1,401     1,579       2,853     3,373
Amortization of debt
 issuance costs                  (585)     (571)     (1,155)   (1,141)
                             --------- --------- ----------- ---------
  Income before income taxes   44,294    78,724      70,176    83,505
Income tax expense              2,737     3,845       3,522     3,910
                             --------- --------- ----------- ---------
  Net income                 $ 41,557  $ 74,879  $   66,654  $ 79,595
                             ========= ========= =========== =========
    General Partner's
     interest in net income       178       320         285       340
                             --------- --------- ----------- ---------
Limited Partners' interest
 in net income               $ 41,379  $ 74,559  $   66,369  $ 79,255
                             ========= ========= =========== =========


                             --------- --------- ----------- ---------
Basic and Diluted income per
 Limited Partner Unit        $   0.55  $   0.98  $     0.88  $   1.05
                             ========= ========= =========== =========

Weighted average number of
 Limited Partner units
 outstanding:
  Basic and Diluted            75,774    75,774      75,774    75,774
                             ========= ========= =========== =========

SUPPLEMENTAL INFORMATION

Earnings (loss) before interest, taxes, depreciation and amortization from continuing operations (EBITDA).

The Partnership uses EBITDA and adjusted EBITDA as measures of liquidity and they are being included because the Partnership believes that they provide investors and industry analysts with additional information to evaluate the Partnership's ability to pay quarterly distributions. EBITDA and adjusted EBITDA are not recognized terms under generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net income/(loss) or net cash provided by/(used in) operating activities determined in accordance with GAAP. Because EBITDA and adjusted EBITDA as determined by the Partnership excludes some, but not all of the items that affect net income/(loss), it may not be comparable to EBITDA and adjusted EBITDA or similarly titled measures used by other companies. The following tables set forth (i) the calculation of EBITDA and adjusted EBITDA and (ii) a reconciliation of EBITDA and adjusted EBITDA, as so calculated, to cash provided by/(used in) operating activities.

               STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
             RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
                             (unaudited)

                                                   Three Months Ended
                                                        March 31,
                                                   -------------------
(in thousands)                                       2008      2007
-------------------------------------------------- --------- ---------

Income from continuing operations                  $ 41,557  $ 74,879
Plus:
Income tax expense                                    2,737     3,845
Amortization of debt issuance cost                      585       571
Interest expense, net                                 4,261     3,557
Depreciation and amortization                         6,862     7,316
                                                   --------- ---------
EBITDA from continuing operations                    56,002    90,168

(Increase) / decrease in the fair value of
 derivative instruments                               1,813   (18,462)
                                                   --------- ---------
Adjusted EBITDA (a)                                  57,815    71,706

Add / (subtract)
--------------------------------------------------
Income tax expense                                   (2,737)   (3,845)
Interest expense, net                                (4,261)   (3,557)
Provision for losses on accounts receivable           5,147     2,653
Increase in weather insurance contract                    -     2,895
Change in operating assets and liabilities          (75,513)  (76,412)
                                                   --------- ---------
Net cash used in operating activities              $(19,549) $ (6,560)
                                                   ========= =========

Home heating oil gallons sold                       169,365   195,055

(a) Adjusted EBITDA is calculated as earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges. Management believes the presentation of this measure is relevant and useful because it allows investors to view the Partnership's performance in a manner similar to the method management uses, and makes it easier to compare its results with other companies that have different financing and capital structures. In addition, this measure is consistent with the manner in which the Partnership's debt covenants in its material debt agreements are calculated and investors measure its overall performance and liquidity, including its ability to pay quarterly equity distributions, service its long-term debt and other fixed obligations and fund its capital expenditures and working capital requirements. This method of calculating Adjusted EBITDA may not be consistent with that of other companies and should be viewed in conjunction with measurements that are computed in accordance with GAAP. SUPPLEMENTAL INFORMATION

Earnings (loss) before interest, taxes, depreciation and amortization from continuing operations (EBITDA).

The Partnership uses EBITDA and adjusted EBITDA as measures of liquidity and they are being included because the Partnership believes that they provide investors and industry analysts with additional information to evaluate the Partnership's ability to pay quarterly distributions. EBITDA and adjusted EBITDA are not recognized terms under generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net income/(loss) or net cash provided by/(used in) operating activities determined in accordance with GAAP. Because EBITDA and adjusted EBITDA as determined by the Partnership excludes some, but not all of the items that affect net income/(loss), it may not be comparable to EBITDA and adjusted EBITDA or similarly titled measures used by other companies. The following tables set forth (i) the calculation of EBITDA and adjusted EBITDA and (ii) a reconciliation of EBITDA and adjusted EBITDA, as so calculated, to cash provided by/(used in) operating activities.

               STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
             RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
                             (unaudited)

                                                   Six Months Ended
                                                       March 31,
                                                 ---------------------
(in thousands)                                      2008       2007
------------------------------------------------ ---------- ----------

Income from continuing operations                $  66,654  $  79,595
Plus:
Income tax expense                                   3,522      3,910
Amortization of debt issuance cost                   1,155      1,141
Interest expense, net                                7,868      6,871
Depreciation and amortization                       13,870     14,688
                                                 ---------- ----------
EBITDA from continuing operations                   93,069    106,205

(Increase) / decrease in the fair value of
 derivative instruments                            (15,940)   (12,147)
                                                 ---------- ----------
Adjusted EBITDA (a)                                 77,129     94,058

Add / (subtract)
------------------------------------------------
Income tax expense                                  (3,522)    (3,910)
Interest expense, net                               (7,868)    (6,871)
Provision for losses on accounts receivable          6,857      4,605
Increase in weather insurance contract                   -     (4,305)
Change in operating assets and liabilities        (217,837)  (111,022)
                                                 ---------- ----------
Net cash used in operating activities            $(145,241) $ (27,445)
                                                 ========== ==========

Home heating oil gallons sold                      282,518    294,336

(a) Adjusted EBITDA is calculated as earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges. Management believes the presentation of this measure is relevant and useful because it allows investors to view the Partnership's performance in a manner similar to the method management uses, and makes it easier to compare its results with other companies that have different financing and capital structures. In addition, this measure is consistent with the manner in which the Partnership's debt covenants in its material debt agreements are calculated and investors measure its overall performance and liquidity, including its ability to pay quarterly equity distributions, service its long-term debt and other fixed obligations and fund its capital expenditures and working capital requirements. This method of calculating Adjusted EBITDA may not be consistent with that of other companies and should be viewed in conjunction with measurements that are computed in accordance with GAAP.

SOURCE: Star Gas Partners, L.P.

Star Gas Partners
Investor Relations
203-328-7310
or
Jaffoni & Collins Incorporated
Robert Rinderman, Steven Hecht
212-835-8500
SGU@jcir.com

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