Star Group Partners, L.P.

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

STAMFORD, Conn., Aug 06, 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 third quarter and the nine-month period ended June 30, 2008.

Three months ended June 30, 2008, compared to three months ended June 30, 2007

The Partnership reported a 16.0 percent increase in total revenue to $258.1 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 46.0 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 despite product costs reaching new highs on 18 occasions during the third quarter of fiscal 2008.

Operating income increased by $20.2 million to $13.8 million, as a favorable change in the fair value of derivatives of $25.2 million was reduced by lower product gross profit of $3.8 million and higher operating costs (including depreciation, amortization and net service) of $1.2 million. While operating expenses increased due to an increase in the reserve for doubtful accounts ($3.0 million) and the additional expenses attributable to stand alone acquisitions ($2.2 million), the Partnership was able to reduce certain operating costs in response to the decline in home heating oil volume.

Net income increased by $20.1 million to $11.8 million.

The Adjusted EBITDA loss increased by $5.5 million to $9.5 million, as the impact of higher per gallon margins and an improvement in service profitability were more than offset by an increase in the bad debt reserve, warmer temperatures and conservation efforts by our customers. 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 pay the Minimum Quarterly Distribution until February 2009, for the quarter ending December 31, 2008.

Star Gas Partners Chief Executive Officer, Daniel P. Donovan, stated, "The extreme volatility in home heating oil prices continued through the third quarter and we hit record price levels 47 times through July 31, 2008. Prices have increased by almost $2.00 per gallon versus last year.

"Predictably, high prices have resulted in more price sensitivity among our customer base. In addition to seeking ways to conserve, more customers are open to, or are actively seeking, low price offers from our competition. We are fighting to retain this business while conscious of the need to improve cents-per-gallon gross profit margins as we prepare for the winter heating season. Margin management is crucial since a large portion of our operating costs, necessary to profitably serve our customers, are of a fixed nature. We must also ensure proper margins to pay for fuel for our fleet, pay interest on increased working capital requirements and to cover the bad debt expense expected with increased sales levels.

"We have been focusing our off-season efforts on seeking and making sound acquisitions, planning and executing marketing and operating strategies to maximize profitable growth, effectively managing customer communications and requests for the coming heating season and continuing to improve the various services that we offer to our valued consumers. We are maintaining our discipline in acquisition evaluations, in new account credit decisions, in margin management and in an ongoing effort to both collect receivables and retain existing customers.

"With heating oil prices where they are today, we enter the upcoming heating season with a solid balance sheet and ample liquidity - a key advantage given the tight credit environment. Our goal is to continue to manage our business effectively through this challenging environment and thus demonstrate that the resumption of quarterly distributions in February of 2009 is warranted," concluded Mr. Donovan.

Nine months ended June 30, 2008, compared to nine month ended June 30, 2007

The Partnership reported a 21.9 percent increase in total revenue to $1.4 billion, as an increase in home heating oil selling prices was reduced by a decrease in home heating oil volume. Home heating oil volume decreased to 328.5 million gallons, as the additional volume provided by acquisitions was more than offset by the effects of net customer attrition, conservation, slightly warmer temperatures and other factors.

During the nine months ended June 30, 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 increased by $7.9 million to $93.0 million, as a favorable change in the fair value of derivative instruments of $29.0 million was reduced by an increase in total operating expenses (including depreciation, amortization and net service) of $5.7 million and a reduction in product gross profit of $15.4 million. Operating expenses rose largely due to a $5.0 million increase in the reserve for doubtful accounts, the additional expenses associated with stand-alone acquisitions and lower weather insurance benefits.

Net income increased by $7.2 million to $78.5 million.

Adjusted EBITDA decreased by $22.4 million to $67.6 million, as the additional EBITDA provided from acquisitions and slightly higher home heating oil margins was more than offset by the impacts of the decline in home heating oil volume, lower weather insurance benefits and an increase in the reserve for doubtful accounts.

REMINDER: Star Gas management will host a free webcast open to the general public and a conference call on August 7, 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 June 30, 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

                                              June 30,   September 30,
(in thousands)                                  2008         2007
-------------------------------------------- ----------- -------------
                                             (unaudited)
ASSETS
Current assets
  Cash and cash equivalents                  $   90,925  $    112,886
  Receivables, net of allowance of $13,678
   and $7,645, respectively                     152,530        78,923
  Inventories                                    55,253        85,968
  Fair asset value of derivative instruments     59,887        14,510
  Prepaid expenses and other current assets      19,966        28,216
                                             ----------- -------------
       Total current assets                     378,561       320,503
                                             ----------- -------------

Property and equipment, net                      38,336        41,721
Long-term portion of accounts receivables           742         1,362
Goodwill                                        181,897       181,496
Intangibles, net                                 34,787        48,468
Deferred charges and other assets, net            6,967         8,554
                                             ----------- -------------
  Total assets                               $  641,290  $    602,104
                                             =========== =============

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
  Accounts payable                           $   15,815  $     18,797
  Fair liability value of derivative
   instruments                                        -         5,312
  Accrued expenses and other current
   liabilities                                   71,446        65,444
  Unearned service contract revenue              36,878        37,219
  Customer credit balances                       32,246        71,109
                                             ----------- -------------
       Total current liabilities                156,385       197,881
                                             ----------- -------------

Long-term debt                                  173,801       173,941
Other long-term liabilities                      15,535        13,951

Partners' capital
  Common unitholders                            311,060       232,895
  General partner                                   207          (129)
  Accumulated other comprehensive loss          (15,698)      (16,435)
                                             ----------- -------------
       Total partners' capital                  295,569       216,331
                                             ----------- -------------
  Total liabilities and partners' capital    $  641,290  $    602,104
                                             =========== =============


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

                           Three Months Ended    Nine Months Ended
                                June 30,              June 30,
                           ------------------- -----------------------
(in thousands, except per
 unit data - unaudited)      2008      2007       2008        2007
-------------------------- --------- --------- ----------- -----------

Sales:
   Product                 $212,229  $178,971  $1,234,185  $  994,229
   Installations and
    service                  45,838    43,481     143,112     135,391
                           --------- --------- ----------- -----------
        Total sales         258,067   222,452   1,377,297   1,129,620
Cost and expenses:
   Cost of product          174,979   137,922     985,425     730,080
   Cost of installations
    and service              40,451    40,624     138,313     135,482
   Increase in the fair
    value of derivative
    instruments             (30,043)   (4,857)    (45,983)    (17,004)
   Delivery and branch
    expenses                 47,231    43,771     171,985     158,917
   Depreciation and
    amortization expenses     6,703     7,234      20,573      21,922
   General and
    administrative
    expenses                  4,944     4,189      13,983      15,137
                           --------- --------- ----------- -----------
        Operating income
         (loss)              13,802    (6,431)     93,001      85,086
Interest expense             (5,189)   (5,037)    (15,910)    (15,281)
Interest income               2,131     2,953       4,984       6,326
Amortization of debt
 issuance costs                (592)     (571)     (1,747)     (1,712)
                           --------- --------- ----------- -----------
   Income (loss) before
    income taxes             10,152    (9,086)     80,328      74,419
Income tax expense
 (benefit)                   (1,695)     (818)      1,827       3,092
                           --------- --------- ----------- -----------
   Net income (loss)       $ 11,847  $ (8,268) $   78,501  $   71,327
                           ========= ========= =========== ===========
        General Partner's
         interest in net
         income (loss)           51       (35)        336         305
                           --------- --------- ----------- -----------
Limited Partners' interest
 in net income (loss)      $ 11,796  $ (8,233) $   78,165  $   71,022
                           ========= ========= =========== ===========


                           --------- --------- ----------- -----------
Basic and Diluted income
 (loss) per Limited
 Partner Unit              $   0.16  $  (0.11) $     1.03  $     0.94
                           ========= ========= =========== ===========

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
                                                        June 30,
                                                   -------------------
    (in thousands)                                   2008      2007
    ---------------------------------------------- --------- ---------

    Income (loss) from continuing operations       $ 11,847  $ (8,268)
    Plus:
    Income tax benefit                               (1,695)     (818)
    Amortization of debt issuance cost                  592       571
    Interest expense, net                             3,058     2,084
    Depreciation and amortization                     6,703     7,234
                                                   --------- ---------
    EBITDA from continuing operations                20,505       803

    (Increase) / decrease in the fair value of
     derivative instruments                         (30,043)   (4,857)
                                                   --------- ---------
    Adjusted EBITDA (a)                              (9,538)   (4,054)

    Add / (subtract)
    ----------------------------------------------
    Income tax benefit                                1,695       818
    Interest expense, net                            (3,058)   (2,084)
    Provision for losses on accounts receivable       4,131       858
    Decrease in weather insurance contract
     receivable                                           -     4,305
    Decrease in accounts receivables                109,025    87,900
    Decrease (increase) in inventories                9,366   (10,239)
    Increase in customer credit balances             10,590    13,158
    Change in other operating assets and
     liabilities                                      4,685    (7,736)
                                                   --------- ---------
    Net cash provided by operating activities      $126,896  $ 82,926
                                                   ========= =========

    Home heating oil gallons sold                    45,958    56,926

(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)

                                                   Nine Months Ended
                                                        June 30,
                                                   -------------------
    (in thousands)                                   2008      2007
    ---------------------------------------------- --------- ---------

    Income from continuing operations              $ 78,501  $ 71,327
    Plus:
    Income tax expense                                1,827     3,092
    Amortization of debt issuance cost                1,747     1,712
    Interest expense, net                            10,926     8,955
    Depreciation and amortization                    20,573    21,922
                                                   --------- ---------
    EBITDA from continuing operations               113,574   107,008

    (Increase) / decrease in the fair value of
     derivative instruments                         (45,983)  (17,004)
                                                   --------- ---------
    Adjusted EBITDA (a)                              67,591    90,004

    Add / (subtract)
    ----------------------------------------------
    Income tax expense                               (1,827)   (3,092)
    Interest expense, net                           (10,926)   (8,955)
    Provision for losses on accounts receivable      10,988     5,463
    Increase in accounts receivables                (83,976)  (27,676)
    Decrease in inventories                          30,895    16,971
    Increase in customer credit balances            (38,960)  (29,117)
    Change in other operating assets and
     liabilities                                      7,870    11,883
                                                   --------- ---------
    Net cash provided by (used in) operating
     activities                                    $(18,345) $ 55,481
                                                   ========= =========

    Home heating oil gallons sold                   328,476   351,262

(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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